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As I write this article (on Tuesday afternoon, March 20th), I am struck by the lack of attention paid to Europe by the financial media over the past week. Europe has been blamed for movements in the markets for so long now that it feels strange to have a trading week in which it is not mentioned in every other sentence.
No doubt there will be plenty more action in Europe for the rest of the decade. For example, if all goes well in Greece – and it’s a big IF - they will still have a Debt-to-GDP ratio of 120% in the year 2020. For now, though, it seems the panic has subsided somewhat.
So now is an excellent time to take a look at the chart of the Euro (EC-Spotv in ProfitSource or HUBB Investor software).
Chart 1 below tells us the Euro is currently trading at a little over $US1.30: Chart 1
click to enlarge
The $1.30 price level is less than 20% below the highest price the Euro traded (1.5988 in July 2008). It is also well above the price at which the Euro first began trading in 1999, as shown in Chart 2 below. Not bad for a currency some say is endangered! Chart 2
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Not only is the Euro trading above where it opened in 1999, it is comfortably doing so. So far, it is looking ok. Now let’s take a look at the weekly swing chart, in Chart 3 below: Chart 3
click to enlarge
We can see that the weekly trend on the Euro is up, with the most recent swing top higher than the previous swing top and the most recent swing low higher than the previous swing low.
The weekly swing ranges, however, tell a slightly different story. Note that the swing range up into the February top was 513 points, which is less than the 698 points the Euro made on its previous swing up. This indicates there is not a lot of strength in the current rally.
This is further emphasised when we look at the monthly chart below: Chart 4
click to enlarge
Note that the monthly swing chart is showing a clear down trend and that the last monthly downswing of 1,926 points was larger than the previous monthly downswing of 1,114 points.
Also note that the swing chart is currently in the process of making what looks to be a lower swing top. This provides a possible explanation as to why the weekly uptrend is not looking too strong. Perhaps it is just another rally within a bear market – the calm before the next fall.
For this story to change, we would need to see some larger swing ranges on the weekly chart and a higher swing bottom on the monthly chart. Otherwise, I would suggest there is more downside in the Euro, for at least the next couple of months.
You can see by the sizes of the swing ranges above that when the Euro is trending, there is plenty of money to be made by getting on board and trading with the trend and I expect 2012 to provide several opportunities of this kind.
Be Prepared!
Mathew Barnes
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