The Euro Chart

This is a big one. I think the weekly chart of $EURUSD is telling us a lot as we hit levels not seen since 2011. A failure up here could mean trouble for European stocks, and really stocks as an entire asset class.
Here are the weekly candles for $EURUSD – I don’t think it’s a coincidence that we’re failing exactly at this downtrend line from the 2008 highs:

Every time prices rally up to this downtrend line, the $EURUSD fails very hard. The first time in 2008 we saw a 23% sell-off in the currency. After failing up there again in 2011, euro fell 20%. What’s going to happen this time?

If this week’s failure is just that, then I would imagine European stocks will also come off. The currency and their stocks are very highly correlated over the past year. If you run the numbers, the Euro and Euro Stoxx 50 (FXE/FEZ) have a 0.9% positive correlation.

Meanwhile, European stocks are very highly correlated to US Stocks as well. We see a 0.94% positive correlation between Euro Stoxx 50 and S&P500 (FEZ/SPY). So I don’t think it matters whether you trade currencies or US stocks, this is a chart that we all need to be watching.

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