So far this year, equity and commodities have traded in tandem with the Euro, however over the past week or so we have seen equities in particular outperform whilst at the same time the Euro has traded at 2 year lows versus the dollar. The trend in the Euro still looks to be lower but this divergence could be an early sign of a Euro rally.

Equities although outperforming appear to be stuck in a range with the S&P hitting resistance in the 1350-1360 range but supported around 1320, with the potential of further global easing the main upward catalyst. The Fed continues to hold off on significant easing but looks likely ahead of November elections, something that may be a driving factor in any relative Euro strength.

Technically, of possibly more significance is the RSI of the Euro, as we have made fresh year lows in the pair the RSI thus far is holding well relatively speaking, a classic bullish divergence and a pattern that formed September/October of last year prior to an 8% rally. The Eurozone has significant ongoing challenges but it is worth monitoring technical set ups for clues on the next move.

 

Posted by Philip Ball | Sales and Trading