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The Euro may have topped

Let’s look at pictures first, and tell stories later.

Pictures

Looking at the days of this week, we made a nice turn, off a very strong reference point, a gap left in the 2014 washout, which happened when the Fed stopped US QE.

That was a very nice topping tail through the gap.  But on an hourly chart, we got an even stronger rejection tail, as confirmation, a few days later.

Looking at weekly chart, we can see more in context, the historical levels this is auctioning.

We pushed above the 2015-17, so now it’s playing older ranges.

You can see how the 2015 top just barely touched the bottom of the decade old range, and strongly rejected.  In 2016 it tried again, and couldn’t even get back up there.  But now, in 2017, it has pushed a little in.

The rule is, if it gets above 15% of that range, and holds, it’s likely to go all the way through.  But it appears to me, just eyeballing it, like it went around 15% in, and promptly rejected.

If it did indeed climb into that range, the 80% rule would take it all the way through, to $125, which would be a screaming short.

But there is a good argument it won’t get that far.  For one thing, this is the first touch of that 2010 low candle, and that’s the bottom of a MUCH bigger range than the 2005 range.  And look what happened in 2015 when we just touched, like a feather, the bottom of the 2005 range.

Those tails can be VERY strong resistance, especially the first touch.

Stories

When we think about fundamentals, the biggest move in recent times was down.  That was in 2014, at the time when the US stopped printing money.  So the US money supply began contracting, relative to the Euro, which was still printing.

If the Fed follows through with unloading their bonds on the market in Sept. that would be a move of a similar type, and scale.  That would likely start the Euro down, and the dollar up.  If then in Dec the ECB followed through, and tapered QE, and the Fed accelerated bond sales, the move would probably pick up steam, and the down move that started in 2008 would continue, probably to parity, or 97 cents.

If, on the other hand, the Fed postpones in Sept, but follows through in Dec. we might get go sideways,
until then, or drift up to that $125 level.

Which is more likely?  To me, it seems like, with stocks at all-time highs, there is a good chance they follow through in Sept.

On the other hand, if North Korea does something really, really stupid (and they’re just the guys to do it!), and the market crashes before the Sept meeting, then, of course, probably the Fed postpones.

The Dollar chart

Pace

In my prediction last June, I guessed the dollar would go further down, and take longer

Because I thought a turn like this would be too obvious.  This is what it did last time, in 2015 AND 2016…barely broke out of range, left and obvious bottoming tail, and sailed up.

Will history repeat AGAIN?  That would be so obvious of you, history.  I’ve come to expect more surprises.

However, this IS where I’d predicted the Euro would top.  Just not WHEN.  I thought we’d make the actual turn on the actual Fed policy shift.

And the dollar, like the Euro, is just touching on a HUGE decade long range below…the inverse of the Euro chart.

First, in 2015, it touched the first top of that range it could find, which was the 2005 top.  In 2016, it pushed to the next reference point, which was a 2004 top.

Now it’s back for a 3rd try.  It’s pushed slightly lower, and touched those shoulder tops from 2005.

Same story as with the Euro, it can get 15% in to that range, but if it digs any further, 80% of the time, it would go all the way through, which would take it to 87 cents….which would probably correspond to 1.25 in the Euro.

Deeper history

Just for fun, let’s rethink the earlier moves.

The first huge move down in the dollar, and up in the Euro, started from 2002 ish.  That was probably mostly caused by the US easy money policy, that was the solution to the Dot Com crash, and set up the house bubble.

So money was created in the US by people taking loans to buy houses, from about 2002-2008.  In the chart, it looks like the shit hit the fan in June of 2008 (an acceleration of mortgages going belly up.)

Without googling dates, in the chart, it looks like the use started QE in March of 2009, and maybe was announced in November, right after the election.

So then money began to be printed just to replace the disappearing money of defaults, just to keep the dollar from sudden dramatic appreciation.

When they finally laid off, the 2008 up move completed in 2014.

It also appears, btw, that there was a huge wave of house buying, in the last gasp years of the bubble, from March 2006- March 2008.

At least that’s what I would guess caused these moves.  Although these guesses are very US centric.

I’ll have to look it up, and see if my guesses were right.

Predictions

If that was a large time frame top in the Euro,here’s my hypothesis 1.

The idea of the down force, is the Fed and ECB action.

The up force would be Trump tax cuts (that’s how I guess he would try to further weaken the dollar, by strengthening the business climate, and thus economy, and thus loosening conditions.)

If tax cuts go through, the news might propel that one wave higher, to 1.25 in the Euro. That would be hypo 2.

Hypo 3 is that we balance here until Dec, then fall.

Hypo 4, or z, is, it gets past 1.25 and holds.

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