By Pinchas Cohen
The euro has been falling harder since German industrial production dropped for the second time below zero, to a negative 1.6 percent, far lower than expected. This was following an unexpected fall to a negative 0.8 percent in September, a hard blow from the 2.6 percent on the upside from the month before. Low German manufacturing has really hit the euro below the belt, at a time when it was already in a downtrend since German elections.
The dollar, on the other hand, is enjoying a respite from political gaffes while President Donald Trump tours Asia – well, relatively. Trump did undercut foreign policy advisors and set foreign policy “on the go,” tweeting: “I have great confidence in King Salman and the Crown Prince of Saudi Arabia, they know exactly what they are doing…” followed 2-minutes later by “…Some of those they are harshly treating have been “milking” their country for years!”.
While it’s unclear how different the Crown Prince’s actions were from those of Recep Tayyip Erdogan last year, the president has already given him the presidential seal of approval. While Trump’s knee-jerk support might be nothing more than a consolidation of power, this compounded by oil price manipulation has the makings to blow into an international scandal. Dollar bulls seem to consider this as perfectly conceivable, as the dollar provides an intra-day, decisive downside breakout to a continuation pattern, confirming the presumed H&S top for the EUR/USD.
We have alerted our readers in multiple posts since the forming of the right shoulder of a potential H&S top. We have alerted you to a downside breakout, coupled with a warning that the less than 0.8 percent penetration of the neckline doesn’t even satisfy a 1.00 percent aggressive filter to avoid a beartrap. Since then, we have apprised you of the development of a continuation pattern by the name of a rising flag, whose bearish nature is confirmed with a decisive downside breakout.
Now we are keeping you up-to-date. The decisive downside breakout occurred today on an intraday level. A valid signal is provided when the breakout is on a closing price. The breakout also extended the initial downside H&S breakout, nearly completing the aggressive 1.00 percent filter.
The flag’s implied target is a repeat of the preceding sharp, 2.00 percent, 250-pip move on the two days of October 26 and 27. It wouldn’t surprise us if we would achieve the target as early as tomorrow.
In the bigger picture, such a decline would complete a 3 percent neckline penetration, satisfying even a conservative trap-filter. The implied target is 1.1245.