Key Level to Watch on Euro Index and FXE

Nov 27, 2010: 10:30 AM CST

From a simple charting standpoint, the Euro Index and corresponding ETF FXE have retraced into a key price zone that – whatever happens here – will likely be an important clue as to what to expect going forward.

Namely, is this pullback just a retracement in an ongoing strong uptrend… or potentially the beginning of a larger retracement or possible reversal?

Let’s see the level and then watch for follow-through in the week ahead.

Stripping the chart down to simplicity, the key index level to watch is 132.

Why?  That’s because the 200 day SMA currently rests at 131.50, and a prior index swing high occurred in August at the 132 level (technically above 133).

Also, the 61.8% Fibonacci Retracement (not shown) from the August low of 126 to the recent November high above 142 comes in at the 132.40 index level.

Round all these numbers to the 132 level to get the key level to watch which either will hold as a confluence floor of support and start a possible rally here… or shatter downwards, particularly under 130, which hints at best at a deeper retracement to follow or at worst the beginning of a short-term reversal swing.

The next downside level under the 132/130 confluence is the August/September low near 126.  Otherwise, if support holds, look for a bounce to test the daily 20/50 EMA convergence (crossover) at the 136 level.

Here’s the same structure on the tradeable FXE ETF, with additional recent insights from volume.

Volume spiked in mid-September as the Euro (index) broke above both the swing high and 200 day SMA at 132 (right back where we are now) and then noticeably declined as the index rallied to the $140 level.

Buyers were unable to overcome the negative momentum and volume divergences and the fund fell to where we are currently at the key $132 level.

Look at the recent past on the chart with respect to the 3/10 Momentum Oscillator to see how divergences can be helpful (not magic, but helpful) in determining possible turning points on the chart.

We’re not seeing an obvious positive divergence at the moment.

Keep the $132 level in mind, and then depending on what happens here, the immediate upside target of $135/$136 and the downside support target of $126.

I recommend playing for the next likely swing instead of trying to go too far out in your analysis.

Corey Rosenbloom, CMT
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4 Responses to “Key Level to Watch on Euro Index and FXE”

  1. Tony Says:
    well, take a look

  2. Andre Says:

    I see some short term boost to the euro today and tomorrow because of the Irish bailout, so I'll be buying this afternoon at 4pm est. Hopefully we see a nice bounce for a day or so

  3. Tony Says:

    that would be easy money..mmm I don't think so man.. I rather wait for 1.29
    see no bounce

  4. steveo77 Says:

    See third chart down, shows “support” for a Euro bounce up.
    Fear Factor also supports a move up….