EURUSD 'CUP + HANDLE' PATTERN UPDATE.

The large Cup and Handle pattern (See chart below) which I have been watching form over recent months on the EURUSD appears to have completed with the sharp move up during the latter stages of last week. Now is the crucial stage for this, does it shoot straight up towards the measured target around the high 1.4000s, or at least some way towards that? Or does it come back and re-test the break at 1.3860 (Or even overshoot)? - I favour the likelihood of a re-test of the break at some point, this would actually be the more healthy option for continued strength.

One has to also consider the possibility of this being a false break prior to a sharp correction (No one ever said this was easy). Critical resistance is being approached on the longer-term patterns. 1.4040/50 is a daily closing resistance (See posting from Feb 28) and 1.4285 is the prior high in the downtrend since 2008, both these levels could be key.


Personally I favour the move to the high 1.48s in the next few months, but cannot help thinking we may still see some interesting price action, which has the potential to tease rather than please in the next couple of weeks.

Is the Euro getting ready to turn lower?

The past few weeks have been a little aimless for the EURUSD. - Since the sharp drop in the EURUSD on the 11th August (from 1.3160-1.2830) the EURUSD has ranged pretty much between 1.2600 to 1.2900. In that time I had thought we were going to rebound back into the low 1.3000s, however the set-up I was looking at never followed through, and the EURUSD has since sunk back into this extended range. - Now with pressures re-emerging on the periphery of the Eurozone (see the lower part of yesterday's post here) I believe the risk may be once again switching to the downside for the Euro.

On the technical front, the moves on the EURUSD over the past couple of months and weeks have manifested as 'Expanding wedges',which may be indicative of further lows ahead for the EURUSD. - I have some doubts as to the validity of the larger Expanding Wedge due to the way it has formed mostly along the upper line of the pattern. However, the way the smaller pattern has consolidated the breakout, does suggest that this pattern may be valid. The chart below highlights these patterns.

Should the EURUSD start to breakout and hold below the base of the mini-pattern and the recent 1.2600 low, then there is a chance that a deeper and more prolonged breakdown in the EURUSD. - The next chart shows the monthly EURUSD, I have highlighted 2 significant features of this chart. The first feature is the large Multi-Month broadening pattern, (as I have mentioned before these broadening patterns are very difficult to trade signals off, however they can point to where strength and weakness lies), this pattern suggests that in the much bigger picture the direction for the EURUSD is going to be much lower. The second feature of this chart is the Andrews Pitchfork, this also points to weakness ahead, the pitchfork as a potential signal is bolstered by the fact that the upper line of the pitchfork held the recent high near 1.3300.

I am not altogether sure that this is ready to break down quite yet, however I do think that the bearish signals, technical and fundamental, are starting to stack up. This is something however I will keep an eye on for a possible break in the not too distant future.

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On a different note, a few weeks ago I posted my 10 favourite trading books (can be seen by clicking here).  I was however amused by a posting on the BNET blog by Geoffrey James where he presents his view of  'The 10 Worst Business Books of All Time'. It is worth checking it out for some amusement, btw the winner was 'Leadership Secrets of Attila the Hun'.  Yep you read that correctly.....

S+P on verge of Breakout + German 10 Year Yield

In a post a few weeks back I alluded to the possiblity of a failed Head and Shoulder pattern in a similar set-up to a failed Head and Shoulder pattern in Mid 2009. (That posting can be seen here). At the time my view was leaning heavily bearish, since then however this Bullish 'Failed Head & Shoulder' pattern has become a much stronger possibility. In addtion this pattern has morphed into a Bullish Wedge Pattern, which though it has not yet broken out, is pushing very close to resistance (a move over (and ideally a close over) 1100, will break the cycle of Lower Highs since late April). The charts below show the mid 2009 set-up and the current set-up. - Note: Failed Head & Shoulder patterns are amongst the most reliable of patterns, with a break above the top of the Right Shoulder (1131) being the potential breakout point. - Also noteworthy is the momentum set-ups for RSI and MACD both similar on both charts. 

Turning to German 10 Year yields, these have been central to the recent crisis in European Sovereign Debt, and by implication closely linked to the sell-off since late April in US stocks. German 10 Year yields were a safe-haven throughout this crisis, as fears regarding the credit worthyness of the PIIGS increased, and investors sought sanctuary in Bunds (German 10 Year Yields) and anything but the Euro. I have over the past couple of weeks made reference to how there seems to be a basing in the German 10 Year yield occurring, and how this is shaping up to look very similar, albeit smaller, than the basing in early 2009. This is continuing, and looks like it may be be starting to breakout to the upside in yield terms (downside in Bund futures). The top chart below shows the German 10 Year Yield over the past few years, with the 2 periods I have referenced highlighted. Whilst fears persist regarding the on-going weakness of the US economy, the fears regarding the Euro Sov Debt Crisis definately appear to be waning, particularly with increasing signs that the German economy, 'the engine room of Europe', faring better. This can be seen in the lower set of charts, which show German IFO Business Climate (Which was released this morning at a very strong 106.2) and German GDP (up to Q2). -This may also continue to favour the EUR over the USD in comng months. (Note : Click on charts to enlarge).