The euro is at a pivotal point right now. After falling from roughly $1.50 to $1.20 between early 2011 and mid-2012, it’s spent the past 10 months trying to climb higher.
That climb may soon end.
Watch for signs of euro weakness on the near-term horizon.
Look below… a potential head and shoulders pattern in forming. I’ve highlighted the shoulders with blue circles. The red line shows an early 2013 attempt to break above $1.35. This move was short-lived as euro bears quickly pushed it back down below $1.30.
If you expect the euro to weaken, as we do, this is a great place to get short. The blue line above shows three previous attempts to break above $1.32, where the top of the shoulders have formed.
Now, we’re at this price again. If the head and shoulders pattern plays out, the euro should turn lower before going much above $1.32. This will happen over the next couple of weeks.
On the way down, expect the euro to find some support in the $1.27 range. But after this level of support breaks… it’s all downhill from there.
The great thing about the head and shoulders pattern is that it provides a mathematical formula for calculating price targets. I’ve done the math… the euro could go as lower as $1.17, taking a good 12% chunk of the euro’s value, if this plays out.
Of course, we can’t mention the euro without revisiting our strong dollar forecast. Remember, any weakness in the euro is a bullish signal for the U.S. dollar.
My suggestion: stay long the greenback and look for opportunities to bet against the euro.
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