Friday, March 15, 2013

Euro Chart Still Looks Bullish

I continue to believe the euro is undergoing a healthy pullback within a larger bullish inverse head & shoulders pattern. Further supporting the technical outlook for the chart, the ECB balance sheet has been shrinking.

                            Source: Bloomberg

Meanwhile, the Fed's balance sheet continues to expand. Net net, a bullish dynamic for the euro to appreciate.

In addition, note that a rising euro has been positively associated with the risk-on trade. The exhibit below shows the euro (FXE) versus commodities (CCI), generally regarded as a risk-on surrogate. The rolling 100-day correlation between the two has been positive.

Source: Bloomberg


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