Created on: 4/17/2011 9:07:20 PM Last Update: 4/18/2011 8:01:07 PM Posted by: RTT
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Euro approaching another cycle top (257)
We have been following the EURUSD (FXE) cycles with great interest. You can see from the chart we are approaching a critical time for the EURO.
Main points are:
1) Strong resistance from $146 to $150
2) RTTTrendStatus is entering EXTREME readings. In the past this has signaled a reversal. (Pink Circles).
3) Hurst Cycle (66 periods) is timed to peak around early May (Green Arrow).
4) Recently the FXE has been rallying along the 1x2 Gann Angle, and a break may signal a reversal.
5) FXE has been trending along the 1x1 Gann Angle from May 2010 lows.
6) The wave structure from May 2010 lows is a large ABC.
7) The overall chart is generally poor for trending, more a swing traders play ground.
We did expect the FXE to roll over in Jan 2011, however the ECB president leaked to the market that an interest rate rise was imminent (ECB lifted rates by 0.25% on April 7th). This caused a cycle inversion (red arrow), a rewarding LONG trade was the result from 135 to 145+. Currently, we are approaching another 66 period Hurst Cycle top in May 2011.
At the moment we dont expect another FXE inversion, because:
- Simply, back to back price to cycle inversions are rare.
- Euro long traders have yet to bank very good profits.
- The argument for further ECB rate hikes should diminish due to debt issues from the PIGS nations.
- QE2 ending in the US should be bullish for the US Dollar ('risk off trade' back on).
- Inflation heating up in the US will attract rate hike talk by the Fed hawks.
- US Dollar short is very much a one sided trade.
- 'Sell stocks in May and run away'. May 2011 could repeat May 2010.
- FXE around 1.50 does not make the German exporters very happy.
- Cycle work posted on this blog confirms the markets are due for a roll over.
Picking tops and bottoms is a great way to make a fortune, or go bust! At the moment there is no sign that large traders are making bets for an FXE sell off. We would like to see the volume double in the UUP (US Dollar long ETF) just like it did prior previous US Dollar reversals. The forecast Hurst cycle top in May can be skewed with price for a few weeks, so we are watching..watching. Give us a sign Mr Market !
NOTE: FXE and UPP are inversely correlated.
UPDATE: Standard and Poors downgrades US debt, but Barry Ritholtz says 'Who cares', I guess we will find out via currency markets very soon. When trends are entering extreme readings on the RTTTrendstatus, reversals can be rather quick!
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