Originally, posted at Capitalstool. Join the fun!
Well, everybody said that the euro was headed to parity with the dollar. This morning, the goal was reached.
Never let it be said that the majority is always wrong. The majority is usually right for longer than most contrarians like to believe. Why do you think there are so few investment contrarians, and why are they so rarely successful? Because it pays to run with the herd until it doesn’t. In other words, Rule Number Two: The trend is your friend. Until it isn’t.
As a liquidity and technical analyst, my job is to observe and notice when the trend is changing. Then I can be a contrarian and be right. What’s the point of being a contrarian, fighting the crowd for years, wrong all the way. Permabears. They ignore Rule Number One. Don’t fight the Fed! Buy when the Fed is easy. Sell when the Fed is tight.
The Fed is tight. It is removing dollars from the world banking system. The ECB is still printing. Ergo there are more and more euros relative to dollars. The price of euros in dollars falls. The permabears on the USD are wrong, and will stay wrong, as long as the Fed stays tight. The dollar may be trash in terms of its diminishing purchasing power. But it’s still the cleanest shirt in the laundry.
In that regard, parity on the EUR/USD isn’t the end of the game. The trend remains your friend, except in the very very short term.
In the past hour the EUR/USD hit a low of 1.000. That’s also the area of a couple of sport trendlnes on the daily chart. And daily cycle oscillators are at the level where they’ve bottomed 5 times in the past year.
No doubt the trading algos will kick in here. Let the short covering begin. This could be gradual at first. It would not surprise to see the EUR sink to .996 before viciously reversing. The rally should be sharp, but limited. There’s no resistance until 1.035 now. But that will sink to 1.03 next week.
One caveat. If .996 gives way, the next targets would be .99 and .975.
Ouch.
