Feb 20: projection charts have been revised to reflect new daily pivots
Feb 21: projection charts have been revised and a new scenario added
The EURUSD is rising on long-term fundamental reasons which will overpower the current technical reversal. This week I will buy the EURUSD around these levels:
The Fed is currently the most hawkish central bank in the world, promising at least three rate hikes this year. This should in theory raise the value of the Dollar against other currencies. But the Dollar and interest rates have exhibited an inverse correlation since December of last year:
Commentators suggest that traders doubt that the Fed will actually raise rates this year. This idea would make sense if the Dollar has been trading within a range to other currencies. But why is the Dollar falling now? A look a the iShares Treasuries ETF suggests that investors have been dumping bonds since late last year:
Note that even during the stock market correction of this month, the ETF did not rise. The dollar was seen as a safe haven, but not Treasuries. This is unusual because dollars are used specifically to buy Treasuries during a crisis. This suggests that investors now have strong doubts about the future of the American economy and the Dollar. This sentiment was probably sparked by the tax cuts of last November. These fears may have been exacerbated by the spending bills that were passed this month, that will likely increase the deficit by $300 billion.
The Euro has been doing well against the Dollar for over a year now. In fact, the dollar index is essentially the inverse of the EURUSD:
Dollar index is weighted in favor of the Euro. But the relationship holds when the Dollar is compared to an equally weighted index of several major currencies:
The EURUSD is now challenging, 1.2550 a level that has not been seen since 2015. It has been rejected three times in the past 30 days.
EURUSD 4 Hour :
Technically this triple top would be a reversal signal. But the rise of the EURUSD is littered with double tops and head-and-shoulders patterns. The rise of the EURUSD is fundamentally driven.
For the week of 19 Feb I am bullish on the EURUSD. Here are three possible scenarios for the EURUSD to test 1.2550 again, presented in order from least likely to the most:
Note that I will be updating these scenarios every day to reflect new daily pivots.
Scenario 1: extreme bullishness
This scenario did not happen.
Scenario 2: initial bearishness
The market will resume the bearish trend of last Friday. Monthly bulls will enter at the confluence of the monthly PP, daily take profit zone, and the historical support. This will start a trend that will challenge the highs again.
Scenario 3: high volatily moves
This scenario did not happen.
Scenario 4: continued bearishness
Sellers will overcome the support area of 1.2288 and fall another 150 points.
Trend will reverse at the confluence of historical support at 1.2180, monthly M2 and the weekly take profit zone.
(Right now I think this is the most likely scenario, because of U.S. Treasury auctions this week and Italian elections this weekend.)
My plan is to count on some variation of scenarios 2 or 4. I will buy at the monthly PP (1.2288) or monthly M2 (1.2364), preferrably with a confluence of bullish technical indications.
I will move up my stop as resistance levels are broken. I will close some of my position at the daily take profit zone. I will close the remaining at the weekly take profit zone, preferably with a confluence of bearish technical indications.
If daily or weekly targets are not met before Thursday or Friday, I will close the trades. The Italian general election is this weekend.
(end of post)