Does the Euro Face the Same Fate as Gold?

Gold prices sliced through $1,550 like a hot knife through butter in April, falling $350 an ounce in less than three months.

Of course, this didn’t catch us off caught in the least. Harry has been forecasting gold will drop as low as $750 an ounce for years now. And I’ve shared with you before the descending triangle pattern that acted as a warning signal to the sharp drop.

As a refresher, here’s a chart of gold going back to 2009. The descending triangle pattern requires three basic elements:

  1. A steep price rise (overextending the market),
  2. A horizontal support level (showing where the bulls tend to dig in, for as long as they can), and
  3. Lower highs (indicating buyers’ waning strength).

See larger image

Now, let’s look at the euro…

From 2002 to 2008, the euro trended upward, gaining more than 75% on the dollar.

Then, just like gold, the bubble popped. The second half of 2008 devastated euro bulls, with prices down more than 20% in a matter of four months.

After stabilizing in early 2009, the euro has just bounced up and down in a sideways fashion. And, the textbook elements of the descending triangle pattern are evident.

See larger image

While this pattern often marks major tops, it’s not wise to anticipate a breakout. Meaning, hang tight for now. We need to see a break below the horizontal support level – roughly 1.2500 – before piling on the shorts.

But when that happens, the drop could be quite large. Based on the measuring guidelines of this pattern, the euro could drop as low as 0.9100 to the dollar, going back to what it was worth in 2002, right before it bubbled 75%.

Just as I’ve said on gold, “buyers beware!”

The euro is a seller’s market.

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Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.