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Euro Index Primed For Likely Rise

04/19/04 10:53:39 AM
by Gary Grosschadl

After a strong rise the Euro Index has corrected to meaningful support.

Security:   $XEU
Position:   Buy

The daily chart below shows how this currency's index hit a double top formation last February. After breaking below the troughline, several attempts were made until the pattern corrected further down to satisfy the double top target (the distance from troughline to top as applied to the downside break).

Now traders have several reasons to believe that an upswing may be in order. The index has corrected down to its 200-day moving average, which is often a turning point. This area also coincides with the lower trendline of a bullish falling wedge. Wedges pointing up tend to be bearish formations especially after a strong move up, while the reverse is also often true, which may be the case here.

The Euro Index may be due to reverse.
Graphic provided by:
Several indicators also hint at bullishness. These three indicators all show positive divergences to recent price action. When price action moves to further lows and several indicators do not follow in a similar fashion, a stronger positive divergence exists. The more divergences, the better the chance of a reversal.

The recent candlestick action also lends itself to possible bullish action ahead. Should an upleg develop, two overhead resistance areas to consider are shown by the arrows, the first being the wedge's upper trendline and the next being the original troughline just above 123.5. Strength above that troughline could eventually challenge the previous double top but that may take some time to develop.

Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

E-mail address:

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