Great Graphic: Euro Now?

The sharp advance in the euro, through the top of the month and a half long range has thrown many participants for a loop today.  The big overweight position as short euros and long the DAX.  Both positions appear to winding dramatically today.  

What is next for the euro?  Some observers, many who mistrusted the dollar in the first place, say the dollar's uptrend is over.  

I am less convinced.  Of course, I recognize the upside momentum in the dollar has faded, but after a strong advance some correction/consolidation was inevitable.  The steady stream of disappointing data has sparked concern that the Fed will not find the opportunity to hike rates that it is looking for, at least this year.  This seems to exaggerate both the slowdown and the Fed's likely response.

This Great Graphic, created on Bloomberg shows the euro since mid-December.  The euro's advance has brought it close to the 38.2% retracement of this decline.  It comes in near $1.1265 (green line).  This is the immediate target now, though when the euro's down trend initially faded in March, we suggested this area as the target.  

There is also a large double bottom pattern, created by the low in March and April in the $1.0450-$1.0500 area.  The euro broke above the neck line today near $1.1050.  The measuring objective is in the $1.1600-$1.1650 area.  Ahead of that is the $1.1515 area that  corresponds to the 50% retracement of the drop since mid-December.  

A Fed statement that continues to recognize that the slack in the labor market continues to be gradually absorbed, and that the economic headwinds are transitory, may help re-anchor the market to the fundamentals.  However, it may take a strong jobs report next week to drive home the message.