Currencies

Although most of us don't trade currencies and it's pretty doubtful you'll find analysis of the EUR/USD in a technical analysis book, the bottom line is the movement of the $USD (which is easiest to analyze by using the Euro as a proxy as the Euro makes up 50% of the Dollar index -by far the heaviest weighting) explains a lot of the market's movements. When the $USD is strong, the Euro is generally weak and stocks, oil and most other assets tend to fall in price with a strong $USD. When the $USD is weak, the Euro is generally strong and asset prices in everything from stocks to commodities typically rises via the legacy arbitrage correlation.

You cannot have a meaningful understanding of the market without understanding at least what the EUR/USD are doing, even better, if we can pick out the most likely path of the $USD (or EUR/$USD) we have an important piece of the puzzle in our overall market analysis.

As such, here's an update of the FX pair and what appears to be the most likely course. You can think of the market and the Euro as moving together and the market and the $USD as having a mirror opposite (inverse relationship), so if 3C looks like the Euro will move up and the $USD down, this is a bullish finding for the market.

First where the EUR/USD is...

 This is long term resistance, the Euro broke above the resistance level in similar fashion as the SPX broke above its resistance, in fact look how closely they move together (as a trick for you tool box, often divergences between the Euro and SPX at turning points like an extended pullback in the SPX with the Euro turning up while the SPX is still heading down-are often excellent early warning signals of a change of trend in the market/SPX).

The SPC in gren and Euro in red, both broke above their respective resistance levels at the same time and broke back below them at the same time. Note on the 4th of June the SPX is still trending down, but the Euro is reversing to the upside, shortly thereafter the SPX followed.

 Here's where we opened this weel's FX trade Sunday night in relation to the major resistance level-keep in mind there's still a huge short presence in the Euro so a short squeeze is a definite possibility, which would have similar effect on the market.

 Here's the last day or so, trade has been choppy, but has a lateral overall trend.

 We are looking at the ETF for the Euro, I'm trying to avoid the significant noise in some of the near term short charts and uncover the trend, the 3 min chart seems to indicate a fairly healthy positive divergence in the Euro this week, there's certainly a change in character in the price trend.

 The 15 min Euro from accumulation before it broke above resistance, to confirmation of the move up to a negative divergence once the Euro crossed above resistance and a current positive divergence in the Euro.

 The 30 min chart shows the same thing. Honestly the 30-60 min charts of the Euro do not look as strong as they did when we were making new lows in the market on 6/4, but there's still something to work with there.

 $USD 1 min trend was in line as price moved lower, however as the $USD popped this week on Euro weakness, 3C failed to confirm and left the $USD in a leading negative divergence; most of the damage has been done the last 2 days, which is also where we see the SPX making a sort of rounding bottom on positive 15 min divergences.

 The $USD 15 min from a negative divergence at the May top to in line with the downtrend to a pop up in the Dollar that saw another 3C negative divergence

The 30 min $USD/3C chart is pretty plain and simple, a positive divergence and a negative divergence as price starts to round over. Should the $USD complete that rounding over and head down, this will be a market positive, however just out of experience, never expect a nice clean move, expect some volatility and chop or some surprise. Wall Street never makes it easy and when it does look easy, you better take a step back and look for the trap.