Been a busy last several days of moving into a new residence, but I’m back and ready to publish more ideas than ever.
Thanks for sticking with me! Let’s talk about the value of the Euro currency.
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The FXE, an ETF that tracks the value of the Euro, has been devastated in recent weeks due to political turmoil especially in Italy, but also in Spain. The Euro has the look and feel of a falling knife, but a couple features are pointing to a turnaround and possible opportunity for short-term profits.
Looking at the chart, we see price has fallen precipitously since the middle of April and has reached support zone levels in the $109-$110 area. In addition, price seems to be printing a classic bear flag pattern with the actual “flag” portion tracing out from 5/9 to 5/14.
Oftentimes, price will reverse direction once reaching the bottom of the formation of the flag pattern – price fell from about $118 to $113 (the lower end of the flag), climbed up to the $115’s (the upper end of the flag), and began falling again. The completion of the pattern would take it to the $110 area, as the “poles” of the pattern tend to be about equal in height (in this case, $5 dollars). This is where it is now after falling a little over 1% on 5/29.
Interestingly, the UUP – an ETF that tracks the value of the U.S. Dollar – has been in a short-term rally. It appears to be tracing out a bull flag, with only very little to go before the UUP’s pattern completes and a presumable decline begins. If money decides to leave the dollar, it may find its way to the Euro.
Trying to pick up shares of a hard-hit stock in anticipation of a turnaround is known as trying to “catch a falling knife” – it’s very impressive when it works out, but very painful when it doesn’t. Seeking profits in the Euro could be dangerous at this point, but with price at support, the completion of a bear flag pattern, and extra money possibly ready to make its way over to the Euro from other sources like money currently invested in the U.S. Dollar, the FXE may be very cheap right now and offer a very short-term opportunity for pattern-reversal profits.
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