The Euro spent much of 2015 basing after its substantial decline in 2014. I recently overlaid the Euro/USD spot price vs. FXE (Euro ETF) and found this ETF to be a strong replication of the underlying. For that reason, should one want to explore a Euro trade, this ETF may be a good instrument to execute. The weekly chart below shows us a base of $104 – $112 USD for FXE. The middle pane below the price chart is a relative strength comparison of the Euro vs. USD. You can see that it is trying to flatten, but my 20 week MA (applied to that indicator) is not yet pointing up.
RSI is flat—typical of a flat market. Stochastics- the shortest termed momentum indicator I look at- is diverging negatively. Meanwhile MACD – a longer termed momentum indicator that is based on relative MA differentials- is diverging positively. RSI show us that neartermed potential remains flat, but MACD shows that there is potential for future upward movement – according to its positive divergence.
On the chart, I’ve circled the red MA line, which is the 40 week (similar to the 200 day) MA. This MA is starting to flatten and perhaps even slope up a bit. That, like MACD, is a potential sign of future positive movement. However, the base top of $112 has not been taken out, and the 40 week MA remains above price. The MA needs to be broken to the upside and $112 needs to be challenged before the base can be considered broken. Both conditions should be met before a change in trend is likely.
FXE is on my watch list. A breakout through $112 could be quite bullish. If you believe that the USD is a bit overbought, this may be a good play on positive technical confirmation.
Keith Speaking in Oakville
I’ll be speaking to the Canadian Society of Technical Analysts in Oakville Ontario on Wednesday Feb 10th at 7:00pm
The topic will be: “Apocalypse Now: A technical look at current markets”
Location: Queen Elizabeth Park Community and Cultural Centre -2302 Bridge Rd, Oakville ON L6L 3L5
Attendance is free for first time CSTA guests.