The Action in the Euro Remains Constructive

Talk about a monster move in the Euro. Isn't it amazing what happens when too many participants are leaning in the wrong direction? This is the type of stuff that gets me up in the morning - there's nothing better.

Let's recap: Remember back in July when it was hard, if not impossible, to find a Euro bull? That's usually step one in finding a sweet setup. This thing was literally left for dead and volume was deteriorating down to nothing. But more importantly, as prices were making lower lows and the headlines were as apocalyptic as they come, momentum was already turning up. Meanwhile, on the other side of the coin Dollar bulls were running ramped. BINGO!

And right on cue, the US Dollar gets slammed and now the euro is just fine. Amazing.

Looking at it now, it still looks like there is some room left to the upside for the Euro. Realistically I would imagine some consolidation is necessary to 1) acknowledge the down trendline from the February highs and 2) work off some overbought conditions in the Relative Strength Index. But the action is still solid. Overbought conditions in RSI are a characteristic of bull markets and show evidence of an extreme number of buyers (which is a good thing):

Now take a look at the US Dollar ETF ($UUP). Notice how when prices were making new highs in July, momentum was already rolling over hard. This was a serious bearish divergence while public opinion was reaching extremes in bullishness. Now we see RSI reaching oversold conditions and showing bear market characteristics. So I see zero evidence to be bullish US Dollars:

I have a feeling this will continue to help precious metals, which have been on fire the last few weeks (see Silver and Gold). But don't be surprised to see some consolidation there too while some of these overbought/oversold conditions in the currencies mentioned above are being worked off.

Tags: $EURUSD $FXE $USDX $UUP $SLV $GLD $GC_F $SI_F