Last week saw a breakout of historic proportions, as the U.S. Dollar got up off of the mat and roared higher across the board, crushing everything in its path. Here we see the Euro – U.S. Dollar currency pair (EUR/USD) crashing back to earth on the weekly chart after hitting a new lifetime high above 1.6000 just a few weeks ago. The pair has found support at a former level of resistance from late last year (see figure 1).
Figure 1: EUR/USD plunges from a failed ascending triangle. Source: Saxo Bank
Looking at the chart, I'd have to say the Euro has a very good chance to break this new support level and continue lower, just based on the sheer velocity of the move. An awful lot of people made an awful lot of money on the Euro uptrend, and now it's time for them to ring the register.
If you are a regular reader, you know that this is a bittersweet moment; as an American, I'm happy to see my currency strengthening, as I've been constantly railing against the weak USD in articles such as this one, titled The US Dollar and the Thief in the Night. Because of that piece I was invited onto Larry Kudlow's show on CNBC. But is the greenback really doing all that well, or is this just a case of the Euro and other currencies doing poorly? To find out, let's look at the hourly chart and pinpoint the genesis of this move. The Euro began to fall in earnest around 9:00 am New York time on August 7, right at the time when European Central Bank chief Jean Claude Trichet said that European economic growth would be "particularly weak" through the third quarter (see figure 2).
Figure 2: Trichet speech ignites the USD rally as the Euro gets crushed. Source: Saxo Bank
So last week's big move is not a vote of confidence in the U.S Dollar; instead, it shows a lack of confidence in the Euro. Still, the tide has turned at least for now, so don't try to fight this move. Also, don't feel too bad for traders who were short the greenback for most of this year, myself included. The weak USD trend has been my friend for quite a while, and it's sad to say goodbye to that friend for now. Until now, this year has been one of the best in memory for USD shorts. Right now it is too early to tell, but if a new trend of USD strength emerges, you can bet trend traders will be riding it.
Why the Euro REALLY Fell…
A one euro coin has turned up in Spain bearing the face of Homer Simpson instead of that of the country's king, a sweetshop owner told Reuters on Friday. Jose Martinez was counting the cash in his till in the city of Aviles, northern Spain, when he came across the coin where Homer's bald head, big eyes and big nose had replaced the serious features of King Juan Carlos. "The coin must have been done by a professional, the work is impressive," he told Reuters. "I've been offered 20 Euros for it."
