Euro vs. Dollar: Strength vs. Weakness?

A few weeks ago at the Nasdaq, I bumped into Dennis Gartman. I was there for a spot at RobTV (Canada's version of CNBC), and he was taping a segment for CNBC's Fast Money. We got to chatting, and quickly discovered we were sympatico - about the economy, markets, and our expectations of future weakness for the U.S. dollar.

Below is his chart (reproduced with his permission) of the Euro versus the Dollar. The technicians amongst you might recognize the Head and Shoulders bottom formation.

As the chart below shows, that 1.3354 line represents a major breakout in the Euro versus the dollar. For those of you who are not technicians, recognize that this pattern is one of the most reliable in all of technical analysis. That's not a guarantee, as all chart reading is best understood in terms of probabilities. This pattern merely makes it a higher probability outcome.

Here is what Dennis wrote on the subject:

THE EUR v. THE U.S. DOLLAR: Might This Not Be The Largest Head & Shoulder Bottom In Modern Trading History... And What If It Is?"

Back in '95, before it was "officially" the EUR, the "Buchgeld" EUR traded to 1.3400-1.3450 and then made its top. Then, long after its official introduction as "Bargeld" currency in '01, the EUR made another top at this same level in '04 before finding strong selling pressure. We are there again, rapping on the door of this multiple top, and in the process over the past twelve or thirteen years have traced out a huge "Head & Shoulders" Bottom on the chart, suggesting strongly that a push upward through 1.3400-1.3500 would be of historical technical importance.

Comments

[huangjin:]

Isn't this dependent on what the Japanese do?

2007 Apr 03 04:47 PM

[wixeywaxy:]

Forgetting the technical detail and recent market trashing of the dollar, what are the factors effecting dollar/Euro valuation? It seems to me to be two overwhelming issues far outweiging the others. These are for the U.S. dollar our trade inbalance and especially the cost of the Iraq adventure. For the Euro, it's the welfare state problem and the unlikely ability to bring it under control. A change in the political environment in the U.S. might well bring the spending on Iraq down but exacebate our social spending. Looking at the probabilities, I'd bet on the dollar rising sigificantly against the Euro a year or two out unless the present spending conditions continue.
V. Van Walleghem

2007 Apr 04 09:34 AM

[Sonia Mirza:]

I don't quite agree with purely technical analysis and charts alone. I could be wrong, but I don't see how watching the lines of the past tells me what the future holds. You can use it to study how the economy (currency) responds to certain shocks/events, but...I'm still not convinced. Agree somewhat with Van walleghem about looking at the trade balance/political environment, but there are other factors (strength and growth of the Euro-nation economies for example). This is not to say I do not look at charts...but if anyone has been able to look at the lines and be 100% right ito the direction of the move tommorrow (consistently) kindly elaborate....is it just a visual monte carlo simulation?

2007 Apr 07 08:48 PM