The cycle of accumulation and distribution defines cause (building) within a broader mark down phase for the euro.
Traders chasing the euro's bounce should be listening to the message of the market rather than bullish headlines that marginalize the consequences of Greek (heading to the polls again) or other EU member default, or the Fed's decision to postpone hiking interest rates.
According to the Irish Times, EU said to consider plan for Greece in event of Euro exit, Euro leaders view a Greek withdrawal as politically and economically 'containable'.
European officials are considering mechanisms to ring fence Greece both politically and economically in the event of a euro breakup, in order to shield the rest of the currency bloc from the fallout, one of the people said.
The Euro's structural flaws make shielding the eurozone from a broader contagion a pipe dream supported by headline opinions rather than the message of the market. If Greece (or any other EU member) exits, devalues, and begins to recover economically, higher-profile members will be motivated to do the same. The pressure to do so will intensify as the business cycle transitions from prosperity to liquidation. A eurozone panic is only a matter of economic activity, confidence, and time without meaningful structural changes. Implementation of any change is already proving difficult for a union grappling with the social movement from cooperation/(trust) to separation/(distrust).
At this point, the majority is not interested in the euro or potential trouble within the eurozone. Grexit and/or immigration crisis, events positioned as containable through laws and rules implemented by leaders lacking skills in practical economics, will struggle to find solutions. Smart money is watching for a reversal in the U.S. dollar to signal trouble ahead.
Trend
A positive long-term trend oscillator (LTCO) defines an weak up impulse (rally) from 112.76 to 111.29 since the fourth week of August (chart 1). The bulls control the trend until until reversed by a bearish crossover.
A close above 117.27-119.12 jumps the creek and extends the countertrend rally. A close below 104.19 breaks the ice and confirms continuation of mark down. This inevitable break will be noted as a catastrophe for the Troika, Euro bulls, and Fed - unofficial central banker of the world.
Chart 1
Leverage
A negative long-term leverage oscillator (LTLO) defines a down impulse or bull phase. (chart 2). This supports the bullish trend and tightens risk management for the bears (see trend).
A diffusion index (DI) of -5% defines relatively neutral, lower middle quartile (Q3) distribution (chart 3). A capitulation index (CAP) of 6% confirms DI's message (chart 4). The trends, the flow of leverage and sentiment from accumulation to distribution and fear to complacency (red arrows) supporting the bulls, likely continue to extreme concentration (chart 3 and 4).
Chart 2
Negative leverage oscillators define on overbought (OB) down impulse that opposes the bear phase and supports the bull trend. OB tightens risk management for the bulls until unwound.
Chart 4
Time/Cycle
The 5-year seasonal cycle (purple series) defines strength or a pause in the downtrend until the fourth week of October (chart 5). The unwinding of leverage within the seasonal strength could extend what should be increasingly violent countertrend rally. The euro's failure to support a meaningful rally during seasonal would be a sign of weakness (SOW).
Chart 5