Analyzing the Euro

The EURO has been struggling the past few months after bottoming in January. But recent developments have it in a pivot area that will either lead to a strong push higher, or another rejection lower.

There is no doubt the EUR is in a downtrend...lower highs since August 2011 are highlighted by the red dashed line. Additionally, the currency is working out a small head and shoulders since February as highlighted by the red arcs. Both the head and the right shoulder failed near the descending trendline. Now the EUR is again testing said trendline in what appears to be a sloppy sideways bearish flag.

Essentially there are only 2 slight positives I can see from this chart. 1) the EUR has held the 1.30 area very well since February. Obviously there is buy interest at that level and until it is broken to the downside that buy interest must be respected. 2) the 50day moving average crossed the 100day moving average in March and both are trending sideways. This is a big improvement from both declining for months.

The Euro has more work to do before it negates its longstanding negative bias and if a big move is coming either up or down it appears to be close. Failure here would likely cause a test and failure of the 1.30 level which could cause quick aggressive selling down to the 1.25 or possibly 1.20-1.22 level. Conversely, upwards breaks of a descending trendline (and its 3 month descending triangle which I haven't gotten into) could cause a violent break to the upside. This upwards break, if it happens, would help to solidify the "risk-on" environment mentioned with the improvement in the major US indices.