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As I write this article on Wednesday morning, May 19th, the Euro (EC-Spotv in ProfitSource) has smashed through its important October 2008 low of 1.2326 and is trading near the low of the day.
I had been watching the Euro for a potential low in March, and thought we may have had it with the Double Bottoms on March 25 and April 8 this year, but the market had other ideas!
On Monday morning of this week, the Euro traded below its October 28, 2008 low of 1.2326, and despite recovering above this level briefly on Tuesday night Australian time during the European trading session, it finished the day as a big Outside Day, closing on its low.
Chart 1 below shows the current price action on the Euro (EC-Spotv in ProfitSource)
Chart 1
click to enlarge
Having just taken out the October 2008 low, there is a large gap before the next major support level comes into play. If we take the last major bear market range from the July 15th, 2008 top down to the October 28th, 2008 low we get a range of 3662 points (1.5988 – 1.2326) If we subtract 3662 points from the recent November 25th, 2009 high of 1.5144, we get a price target of 1.1482, as seen in Chart 2 below.
Chart 2
click to enlarge
Notice in Chart 2 above how the 25% and 50% milestones held the Euro for a time on its way down.
I am watching late May for a turn in this market. Initially, I was watching for a top, with the market potentially coming up from the March and April Double Bottoms, however this has not looked likely for some time. As David Bowden said, if your market is making lower swing tops and lower swing bottoms heading into your pressure date, it’s not going to be a top!
With the late May date approaching, it will be interesting to see if the Euro makes it down to 1.1482 or thereabouts. If it does, hold on to your hats, because it’s going to be a sharp fall!
The Euro seems to be the flavour of the month at the moment in terms of financial markets reporting. If you listen to the news, the stock market always went up or down because of “something.” That “something” could have been the global financial crisis, the price of oil, or the alignment of the stars, but recently it has been about the European Currency and the European economies.
That being the case, any major fall in the Euro could be interpreted to have negative effects on stocks, so if the Euro tanks, we could see this reflected in stock prices.
It should be an interesting week all round!
Be Prepared!
Mathew Barnes
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