1/ Euro’s Struggles
2/ China’s Optimism Short-lived
3/ Germany Sees Bearish Development
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1/ Euro’s Struggles
Comprising over 50% of the Dollar Index, the Euro is where we want to focus our attention for clues about the Dollar. Earlier in the year, the EURUSD had broken to new highs and Americans were reconsidering that European vacation they booked. The currency pair quickly reversed course in a false breakout and has subsequently broken its uptrend.
Currently, the pair sits below its 200 Day Moving Average, which is flattening out and runs the risk of sloping down. This currency pair has further implications than simply American’s travel plans abroad – it also affects global conglomerates translating their profits back into dollars.
2/ China’s Optimism Short-lived
A story that had good traction at the beginning of the year turned out to be more hope than substance. The hope was that China’s relaxation of their COVID-era policies would spark growth in the economy and therefore help its stock market recover the losses seen from its 2021 highs. There is an old adage that says to “buy the rumor, sell the news.”
As represented by the iShares China Large-Cap ETF (FXI), there was a 60% rally in just a few months as investors bought the rumor. Since the reopening, it has been nothing but selling the news.
3/ Germany Sees Bearish Development
Germany’s DAX Index was one of the leading international indices as foreign markets looked like they were ready to take the baton from their U.S. counterparts for the first time in over a decade. It rallied almost 40% from its September ‘22 lows to test its all-time highs. At the risk of repeating myself, it was yet another case of a false breakout.
More troubling is that we have now seen a bearish cross (a.k.a. “Death cross”) using its 8-week and 21-week exponential moving averages. This has coincided with a breach of a prior support zone. Bulls would like to see the index quickly regain these levels.
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Originally posted 26th September 2023
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