The Euro Collapses, Just As the Candlesticks Said it Would

By William Kurtz

It was written in the Bars, and we know the culprits: Double Tops and Candlesticks. Over the past 14 weeks, the Euro has declined from a high of $1.6038 on July 18 to $1.3000 as of this writing on the evening of October 21, 2008. If this continues, quite soon it might be within the realm of reason to consider a vacation trip to Europe again. There are many reasons for the falloff, some of which, at least, are related to the European banks' difficulties and the collapse of the housing market in several European countries.

All looked well for the Euro back in July. it appeared that the ascendancy of the Euro was becoming a permanent fixture, and that the further obliteration of the Dollar was inevitable. How things have changed!

Was this cascading decline inevitable? Perhaps not. Was it foreseeable? Absolutely. The "double top" price formation is generally considered to be a bearish omen. On the Euro's Monthly chart, we see a nearly-identical top in prices for the month of April and for the month of July. These readings were refined further in the Weekly chart, showing nearly identical tops for the weeks of April 24 and July 18; and they were still further refined in the Daily chart, showing nearly identical tops on April 22 and July 15. Investors and traders who had been aware of the April formations would have been well-served by keeping an eye on price progress during July to see whether a similar pattern emerged; and if it did so, they could have taken appropriate action at that time in anticipation of a substantial downdraft in the price of the Euro.

Had they been schooled at all in Candlestick interpretation, investors would have noted at the end of April that the price bars on the Weekly charts of the Euro exhibited long upper "shadows," or "tails" or "wicks" if you prefer, which were clues that traders had tried to drive prices higher, but that in each case they were rebuffed. This circumstance is also a bearish indication, which the knowledgeable trader could have added into the mix of evidence following the second Double Top in July - and he could have made his move to the Short side.

Failing a response to all of that evidence, three weeks in a row of declining Euro prices in July ought to have been enough to satisfy all but the most diehard trader that there was a strong likelihood that prices were on their way down for an extended stay. William Kurtz October 21, 2008 http://www.candlewave.com