The US dollar is the most important currency and EURUSD is the most important currency pair in the world. When you get the dollar right then you can get most things right because everything is so interconnected and linked to it. This is also the reason why I focus so much on it.
I highly respect opinions of some friends and people I follow who think that the dollar might appreciate a lot in the coming months, but I don’t agree with them. I think that the world needs a weak dollar, stocks need it and the inflation narrative needs it too.
I’ve been saying that for some time, and you’re welcomed to read my last post about bonds and inflation as well as my last one on the dollar.
So let me start with going straight into a monthly chart and showing you long term cycles of EURUSD. Note that the price before the euro’s existence is calculated and backcasted from previous’ local currencies.
We first see that EURUSD is moving in a rising channel that’s at least 4 decades long. Then, the up cycles are approximately 10 years long while the down cycles are approximately 6 years long. If we assume that the new up cycle has started in 2015, then we could expect the euro to appreciate for 5 more years at least.
Now, let’s get to a bit more tactical look and check the daily chart. The price is currently holding just below 1.1725 level.
Note that this is also mid 2015 spike top, and it respected it very well since then. Also note that H&S top formation that has started to develop in the middle of 2017 and has likely made many traders short the pair this summer. It did breakdown initially, but very quickly recovered back above the neckline thus potentially trapped many euro bears. And then there’s also a positive momentum divergence, which is potentially showing signs of selling exhaustion. Just when the speculators got very short most of the pairs against the dollar.
If EURUSD is above 1.1725 we wan’t to be long this pair. Assuming the price stays above we got everything that’s needed for the price to rally. So, could we get a similar to 2017 type of a move where EURUSD would go to 1.25 or potentially even to 1.40?