Euro ETF Base Breakout Could Reverse Long-Term Downtrend

By | March 27, 2017

The CurrencyShares Euro Trust ETF FXE has underperformed the PowerShares DB US Dollar Bullish ETF UUP by 35% over the last three years, but that relationship has shifted and the euro fund is now up relative to the dollar fund by 5% year-to-date. There has been price consolidation underway on both charts since last November, and simultaneous pattern breaks look imminent.

The bearish UUP looks like it is preparing to breakdown through intermediate term support and the bullish FXE looks like it is ready to take out resistance. This negatively correlated price action suggests it is time to get on board the FXE as it continues on trend. On the FXE daily chart the five month consolidation process has formed a cup and handle pattern, with rim line resistance in the 105.10 area, which is the 38% retracement level of the 2016 range. The cup and handle formations one of the more reliable technical reversal patterns and a confirmed breakout projects a target objective measured by taking the depth of the cup and adding it to the rim line. In this case, it suggests a move back up through the declining 200 day moving average and the downtrend line drawn off the lower 2016 highs, into the 109.25 area or approximately a 4% gain from the current level.

Daily moving average convergence/divergence is overlaid on a weekly histogram of the oscillator and crossed above its center line on both timeframes. This is a reflection of increasing price momentum and positive short term trend direction. The bullish green-over-red crossover on the vortex indicator is a confirmation of the positive shift in trend.

Overall volume has been improving and on balance volume and Chaikin money flow readings suggests the fund is seeing buying interest. In addition, there is a strong bullish seasonal tendency in the euro currency, and while the seasonal chart only goes back to 2013 pattern a relatively short look-back period, it is impressive. The FXE is a long candidate after a break above the 105.08 rim line resistance level using a trailing percentage stop.

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