Euro Pushes Below November Uptrend

The euro is losing ground for a third consecutive session. It is the longest losing streak since the middle of October. 

The Great Graphic here, created on Bloomberg, depicts the euro since the beginning of last month. After falling in September and October, the euro trended higher in November. It peaked on November 27 near $1.1960, just shy of the lesser used Fibonacci 76.4% retracement (~$1.965). 

Through November the euro trended higher, which is shown with the white line. That trend line intersects today near $1.1840. The trend line was violated early in the North American session and follow-through buying has taken it to $1.1800. It is an important technical area.It has been approached a few times and it has held. The area houses the 20-dayand 100-day moving average (both ~$1.1795) and the 38.2% retracement of the November rally (~$1.1805). 

In the larger perspective, we think this year’s euro recovery is best understood as a correction to the decline since mid-2014. It was helped by the fact that the populist-nationalist wave did not take root in European elections. Unlike in the US and UK, often the center-right parties in Europe ran against the populist-nationalist parties rather co-opt them. In Italy, which likely goes to the polls next spring, Berlusconi’s center-right party seems to be increasing challenging the populist Five-Star Movement. The euro peaked in early September near $1.2090. The 50% retracement of the euro’s losses since mid-2014 is found slightly higher near $1.2165.  

We saw the euro’s decline in September and October is the resumption of the underlying trend. That makes the November appreciation, a correction. Today’s violation of the euro’s month-long uptrend is among the first supporting evidence of our view. The next retracement objective is near $1.1760 and then $1.1710, which corresponds to the November low. It probably requires a break of $1.1550-$1.1600 to convince a high of some import is in place. Short-term technical indicators, like RSI, MACDs and Slow Stochastics favor the downside.