Despite all of the concerns coming out of the euro-zone, there is an interesting technical pattern developing in the euro, that suggests we may be in for a surprisingly strong euro to close out the year.
As shown below, a classic “Cup & Handle” technical pattern has formed in the euro (as well as gold/silver). Resembling a cup in the shape of a “U” and a handle with a slight downward drift, many technicians view this pattern as a very bullish indicator, as it is a combination of two very bullish patterns: the bowl/cup and the flag. The left side shows fear as investors rush out. At the bottom of the cup, volatility drops as supply/demand find balance. Bulls then come in and send prices higher to test previous highs, forming the right side. The base/cup bottom normally corrects no more than 30% or so, and usually lasts at least 7 weeks. A handle forms at/near the previous highs because nerves set in at resistance levels. It’s one last shakeout, typically on light volume, setting the stage for a new breakout to the upside on strong volume. The dollar (blue) has been in a long-term down trend, and continues to trade inversely to the euro. With QE3 now on the table, most view the dollar to continue its decline.