Broken Trend for the Euro
October 17, 2016
Dennis Gartman is editor and publisher of The Gartman Letter, and strategic advisor of the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN). He regularly contributes to AlphaBaskets and lends his institutional insight to educate advisors and investors about commodities and the forex markets, including about trading gold in different currency terms.
The EUR is under duress, or certainly was on Friday as it closed the week on its very low, just below 1.1000, and although it has bounced from its worst levels… 1.0965… made earlier today in Asian dealing. However, the bounce is on the lightest of volumes and appears to be nothing more than short covering of the most modest sort.
We are including here this morning above the same chart of the EUR that we included in Friday’s TGL for we think that this chart “speaks” volumes as it shows a huge, multi-month Head & Shoulders top having been formed over the course of the past eight and one half months. It shows a smaller, but equally important Head & Shoulders top formed from early April through late June, and it shows an even smaller Head & Shoulders stop forged from early August through late September. But most importantly it shows a truly well defined, upward sloping trend line that extends back to the very start of this year, having been broken through to the downside last week. Today’s action only serves to prove the importance and the validity of that trend line having been broken.
We note the rising dissonance politically in Europe as the far Left and the far Right parties are ascendant while the centrist parties find their support levels waning. This cannot play out well, and we point to the rising support for that most interesting party in Italy, the Lega Nord, whose openly anti-EUR and anti-EU rhetoric is once again resonating and gaining support. In years past, the Lega was openly supportive of having Northern Italy break away from the rest of the country, angry that “Northern” taxes kept going to Rome and disbursed to southern Italy and to Sicily. But over the past several years, the Lega has followed a more moderate path way, adopting the same anti-EUR principals that guided the UK Independence Party. However, as the Lega’s popularity rises, we fully expect to see the “separatist” rhetoric ramp up once again.
Regarding gold, we remain bullish of gold in EUR terms just as we remain ambivalent of gold in US dollar terms noting several times last week that gold was holding steady even as the EUR was falling. That was a change 3 from the “action” of the previous several weeks where a rising EUR and rising gold, or a falling EUR and falling gold were co-extensive. Now, gold holds firm as the EUR weakens, proving… at least for now… the validity of our argument and of our positions.