Mathew Barnes
Mathew Barnes

Why on Earth Would You Buy Euros Now?

Have you heard about the debt problems in Europe at the moment? It seems that wherever you look or listen, someone is telling you how bad it is in Europe - Greece is a basket case, Spain is next, the Euro is finished... and so it goes. With all these negative views being portrayed by the media, you could be forgiven for adding an extra line to your trading business plan that reads ‘Don’t buy Euros again. Ever!’

All this stuff being written and said about Europe may be true or they may be complete rubbish. As traders, it is important we do not get caught up in the hype.

Remember at the end of 2007, when the Australian share market was at all-time highs and the ‘commentators’ were saying the market was strong and the bull run would continue for years to come? Other than Noel Campbell from Safety in the Market, I don’t recall anyone declaring: “the bull market is over, sell your stocks.” If and when all of Europe’s problems are finally over (one way or another), I don’t expect we will hear about this in the news on the day of the low – it will probably be after the currency has rallied for a year. It is up to us as traders to read the swing charts and let the market tell us when it is ready to turn.

In this article, I will be focussing on the Euro trading against the US Dollar (a currency with problems of its own that we will no doubt be reminded of, once the media tires of Europe stories). The code in ProfitSource software is FXEUUS for the FX chart or EC-Spotv for the Euro Futures.

I believe that the Euro probably has more downside but I think that July will produce the 2012 low. At the time of writing (12 July), the Euro low of 1.2211on 11 July is the low for the year on the FXEUUS chart in ProfitSource, as shown in Chart 1 below:

Chart 1

click chart to enlarge

There are two points I want to cover in this article. The first is why I think the Euro has more downside. The second is why I think we are at or around the yearly low.

Why I think the Euro has more downside is easy. As you can see in Chart 2 below, the Quarterly Swing Chart is showing contracting upswings and expanding downswings:

Chart 2

click chart to enlarge

Keeping in mind that the Euro/US Dollar trades to four decimal places, the last big upswing on the Quarterly Swing Chart was 2068 points, which was smaller than the previous upswing of 2406 points. The current downswing on the Quarterly Swing Chart (which is not officially over until the swing chart turns up) has run 2728 points. 2728 is approximately double 1410 points, so we have an Overbalance in Price to the downside.

Any rally from here is likely to be a move up into a lower swing top on the bigger picture, before we then see more downside. However, because we are dealing with a Quarterly chart, any rally is likely to be substantial.

Which brings me to the second point of the article - why I think we are at or near the yearly low (and at or near the end of the first swing down on the Quarterly Chart).

In Chart 3 below, we can see that the Euro has reached the 200% milestone of its range down from 4 May, 2011 (Yearly Top) to the 12 July, 2012 low.

Chart 3

click chart to enlarge

Note that the market reacted at the 100% milestone of this range as well.

In Chart 4 below, we can see that the Euro has made three sections in Time from the May, 2011 top, with the second and third ranges being 200% of the first range.

Chart 4

click chart to enlarge

Zooming into the final range down of 138 days in Chart 4, we can even see harmony in this year’s run down from the February, 2012 high. This is shown in Chart 5 below:

Chart 5

click chart to enlarge

To top it off, there is some great Time by Degrees harmony running back from these July lows.

So, to answer the question I posed in the title of this article: Why on earth would you buy Euros now? Because Time and Price say so, that’s why!

Of course, you wouldn’t just go out and buy the Euro, you would wait for a signal. My signal of choice in this instance would be a first higher swing bottom with an expanding upswing and contracting downswing on the daily swing chart.

On 22 September this year, I will be running an Online Currency Forecasting seminar, (as I have done for the past three years), and this Euro setup (and where it is likely to run to) is one of three live market currency setups I will be discussing at the event. Stay tuned for more details!

Be Prepared!

Mathew Barnes