[Calxy]

Technical developments on EURUSD - establish a base here that could set the tone for a significant move higher in the months ahead.

EURUSD monthly chart


As at today’s close EURUSD looks set to do something that it has not done since 2003. In addition this will be only the 5th such instance since the trend low at .8228 in October 2000.

• A close today above 1.3095 will be a bullish monthly reversal/outside month.

• Definition:
o Posts a lower low than last month
o Follows it with a higher high than last month
o Follows that with a monthly close above last months high (1.3095)

• This development would be an unambiguously bullish medium term signal and suggest the potential for a renewal of the bear trend in the USD. Since the lows at .8228 in October 2000 there were 3 instances where this development took place

1. July 2001 off a low of .8350 after which it moved higher to .9335 in the following 2 months. .8350 never traded again as the USD bear market began in earnest in early 2002.

2. Dec 2002 off a low of .9860 after which it moved to 1.1935 by May 2003. .9860 never traded again.

3. Sept 2003 off a low of 1.0762 after which it moved to 1.2930 by Feb 2004. 1.0762 never traded again

4. November 2003 off a low of 1.1376 as a continuation within the uptrend. 1.1376 never traded again

The present pattern looks most like 2001 when the pullback to .8350 got it within 122 points of the trend low but never managed new lows. This became the start of the basing pattern for a multi year move lower in the USD.

This time around the low off which this monthly reversal may be posted is 1.2457. This fall therefore got within 128 points of the low posted in October 2008 at 1.2329 where again new lows were not posted.

These developments fit closely with 2 of favourite EURUSD charts.

1. Comparison to the turn in late 1993/early 1994.

• Dynamic looks very similar.
• EURUSD hits trend high and falls as yields accelerate to trend low
• EURUSD bottoms out just ahead of yields. (July 1993 and October 2008 for EURUSD and Oct. 1993 and December 2008 for yields.)
• EURUSD bounces and then falls again but does not set new low. 2nd move higher comes as yields move up sharply. It got within 193 points of the low in Feb. 1994 compared to 128 points from the low this month. Look what happened in Feb 1994.



In 1993 the USD strengthened after EURUSD had hit a trend high of 1.4577 and fell to 1.0812 (25.8% move). Thereafter we saw renewed USD weakness to 1.3852 over the following 2 years. The present fall in EURUSD from 1.6040 to the 1.2329 low was a move of 23.1%.