Tuesday, November 25, 2008


Where do we go with the Euro from here on?


Euro is in a consolidation range for some time now. But where do we go from here? We had an exceptional rally in the markets yesterday and the Euro added nearly 500 pips yesterday at the highs. We came back quite a bit overnight and I have to decide whether I see Euro falling back to 1.2500 or whether the Euro has finished the consolidation and is ready to break the pattern to the upside.

To the upside? Hold on...Consolidations are broken in the direction of the primary trend, which is not up but down in the Euro. So why am I thinking that the euro might break the pattern to the upside?

Well it will break the pattern to the upside if that consolidation was a bottoming formation and the downtrend in the Euro, which started in July from the all time high, has already made a midtrend consolidation pattern, which was broken to the downside.

Let's take a look at a longer term chart.


Yes, the Euro has made a midtrend consolidation, which I marked in the chart above. The all time high is some pips below the second target from that consolidation range and our current year low is a few pips above the second downside target from that consolidation. So we can for sure say, the euro has already made a midtrend consolidation, it has broken to the downside and what we are seeing currently is no consolidation but a bottoming reversal pattern.

Anything else supporting that view?

We have made three higher lows and we are at the apex of a Wolfe Wave Pattern with an ascending baseline whose target is 1.32


Longer term where do we go from here?


If this bottom at 1.2500 in the Euro proves to be the bottom of the current steep downmove then the monthly Euro chart tells us we are in for a more leisurely ride in the Euro in line with the monthly volume weighted average (yellow line).


This actually would be a very healthy development as the steep ascend of the 55 moving average wasn't sustainable for the long term.

But this monthly outlook is too long even when I'm trading the euro on an account cash basis and not with futures. I need to decide what to do today.

Go long US Dollar an the basis, that euro tested and rejected 1.30 and is now returning to the 1.25 level or stay long Euro on the basis that we had 3 successful tests of the lows with strong support shown by the ascending lows. We made a nearly 500 pip move yesterday. This move needs to consolidate and we might retrace today. As long as 1.27 holds we are still in the uptrend to retest the 1.30 level. 160 pips from current levels to the downside sounds quite a lot, but I'm in euro cash, staying in the euro will cost me a few US Dollar, when converted to base currency. But Euro seems to be supported this morning looking at a 50 tick chart and therefore I'm not inclined to go against it right now. Actually I might support my stance by trading Euro futures on the long side today. Will see how the day unfolds.