To say the least, the last four years have been a wild and volatile ride for the Euro currency. As the implications rendered from Eurozone debt continue to evolve, economists the world over debate the Euro's fate daily. Below is a chart of the Euro, which has a potential head-and-shoulders-top formation in place. This is a potentially bearish formation that I will now explain.

Look to the right side of the Euro daily bar chart below. Notice the three red, short horizontal lines. Then picture a man's back facing you. The red line furthest left would represent his left shoulder, while the middle red line would be his head; and the line furthest right would be his right shoulder. This is a bearish chart formation, since attempts to retrace to the head's high fail during the formation of the right shoulder. Theoretically, market participants eventually realize that the upward trend has exhausted itself, and the trend reverses.

 

 

The projection measured from this head-and-shoulders neck-line, if completed, would take the Euro down to the 112.00 area minimally. As always, I like to mention that no analysis is fool-proof or guaranteed. That's why I always refer to chart patterns as potential ones. A pattern is confirmed only after a chart projection has been achieved. This pattern would be negated if the Euro rallied back up through 136.00 with momentum. It sits at 131.43 as of 11:15 AM CST today.

IMPLICATIONS – Similarly to the implications mentioned in my chart commentary on 30-year T-Bond yields of March 2, the Euro has in place a chart pattern that calls for a projection which, if fulfilled, would probably be problematic for global equities. The Euro has been part of the 'risk-on' trade and has tended to do well during times of less global economic duress. On the other hand, it has performed poorly during periods of more concern. A trip down to 112.00 (last seen in 2003) would probably be accompanied by a risk-off "flight-to-quality." A 112.00 Euro/USD would obviously be a new crisis low for the Euro, and would be a 62% Fibonacci retracement of the Euro's major rally of 2000-2008.

Dominic Cimino

Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Preferred planning concepts, LLC & Cambridge are not affiliated.

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© 2012, Dominic Cimino of Preferred Planning Concepts, LLC (You can explore the services offered by Preferred Planning Concepts by viewing us on our website at www.ppcplanning.com) Any redistribution, reprinting, or reference to this chart or content is allowed so long as reference to the author and source is acknowledged.

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