What’s next for the Euro?
The Euro has moved to last week’s high of 1.1790 overnight after strong buying in Asia.
This has followed strong buying since Friday, after the Euro fell to intra-month lows at 1.1670, following the Catalonian troubles.
You can see all of this happening in the chart below:
Today we could see further disturbances, if the Catalonian president announces secession from Spain today.
There would be considerable risks to the downside if this were to occur.
Not only have the last few months seen heavy buying in the Euro – which would probably mean the market wants a shakeout of long positions – but any negativity, or lack of action from the EU could be seen as troublesome for the project.
This would have a negative impact on the Euro in the most probable case.
On the other hand though, there is a bullish case to be made…
I believe there is potential for a Wyckoff bottom pattern here, but we’d have to see whether 1.1680 holds.
Take a look at the chart below. When you see a market with ‘space’ on the chart (look at the big black area with no price action), it’s likely that price will want to explore these prices to test the market.
So I would equally not be surprised if the Euro were to rally in to this area. 1.20 is the yearly high in the market and I think there is potential for it to go higher.
There’s a good technical basis for this too…
Even looking at basic trend line analysis, with a 500 period Linear Regression, or line of best fit, you can see there’s potential for a move higher…
As you can see in the chart above, I have plotted a linear regression line – the central red line.
A linear regression line simply finds the R-squared (line of best fit) of a period of prices and the red and blue channels either side show two standard deviations from the mean.
Think of it like a bell curve… if you don’t know what a bell curve is, it’s this:
Essentially, the majority of data naturally lies at the mean. This means that in the markets, it’s likely if we move to extremes of price, we’ll eventually move back to the mean.
Many trading algorithms are actually based on this concept of mean reversion.
If we look back at the chart, we can see that the two standard deviation move to the upside (blue section) correlates even with the standard downward trendline (light blue line) if you follow it from the all-time high in 2009.
It’ll be interesting to see the EU’s reaction over the coming weeks to the Catalonian question.
I’d like to see if there are any hypocrisies that arise… not out of spite, but simply to see what the reactions would be from the EU.
Is that sadism?
Oh well, at least it might be a bit of excitement…
Talking of exciting things – we are just about ready to wrap things up with my brand new book and send it off to the printers.
I’ll be in touch later this week with details on how you can pick up a FREE – yes FREE – copy of it.
And potentially bag yourself a free VIP ticket to the official launch party.
My publishers have really got behind me on this book as they really do believe it’s the perfect guide for anyone who wants to learn everything about trading the markets.
They are confident it could be the most important and valuable book Agora members ever read.
I hope that once you’ve picked up your free copy and taken a look, you’ll agree with them.
As I say, once everything is finalised here, I’ll be in touch with all the details.