A 150-pip rally followed. But now, the euro is undercutting the same level, flashing another sell signal—a clear example of the muddy waters that have dominated the forex markets for months.
Meanwhile, momentum is printing a bearish divergence, and the topping formation mentioned in mid-April appears more plausible.
I’m short the EUR/USD below 1.0745, targeting 1.0450.
The yen is another repeat offender.
Instead of the forex pair, let’s take a look at the futures contract:
You’ll notice momentum is the dumps within a bearish regime, and price is declining below a downtrend line – zero signs of a bullish trend reversal.
That will change if and when price closes above .6500.
I like buying Japanese yen futures above that level with an upside objective of .6850.
Of course, you could express the same thesis by shorting the euro against the yen.
Here’s a more direct route: The euro-yen cross:
The setup is simple: Short the EUR/JPY against 170 with a rough target of 164 (close to the November 2023 high).
If price breaks back above our risk level, walk away.
The markets will be more volatile after tomorrow’s interest rate decision and Powell’s press conference, so tread lightly.
The bigger picture: If the short-euro trade works, US stocks will experience dollar headwinds.
A stronger dollar could prove more challenging for stock market bulls as upside participation narrows despite the Nasdaq and S&P's new all-time highs.
Either way, it’s messy out there.
All we can do is protect our capital and roll with the punches.
