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The Euro's All Boxed In

Published 11/30/2016, 10:55 AM
Updated 05/14/2017, 06:45 AM
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Europe to an American is a hard place to understand. Each country is about the size of one of our states. They have sports fans that sing national songs and support their national team without question.

So it may come as no surprise to Americans that Europe's currency -- the euro -- currently looks like trash. The long-term chart below tells the story. After falling into a low in 2000, euro strengthened over the next 8 years, reaching a peak in 2008, just as the world economy was headed for a free-fall. It dropped with the world markets but found support around 120, where it consolidated against a series of lower highs for the next 6 years. That was about a 50% retracement of the 8-year run higher.

XEU

iShares MSCI Europe

At that point it has built a descending triangle. It broke that triangle to the downside at the start of 2015, which established a target to about 80. That would be a full retracement of the move higher. But the euro stalled in its move lower as it hit the 110 area. Over the last two years it has moved in a box from 105 to 115. Is it ready to move out of that box? If it does, it'll create a second target to 80. Momentum suggest it could happen soon. The RSI is moving back lower after not even reaching the mid line. The MACD is also turning lower toward a cross down. All of this is happening as the euro is reaching down to the bottom of that box. Look for a move under 105 to signal continuation to the downside.

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