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Why Europe is in big trouble!
As I mentioned in the beginning, the EU is behind other major economies with the vaccine roll-out.
This means, it'll take a lot longer for the EU economy to recover.
The lockdown in the EU and other virus lockdown measures are going to remain in place.
And this is causing much worry with the Euro (EUR/USD) currency's value.
In fact, here's some of the latest restriction measures:
• Germany has announced their 5-day lockdown over Easter.
• The German Council of Economic Experts (GCEE) predicted that German Q1 GDP would be negative 2%.
• France and Italy have imposed tighter restrictions for a month
• Greece's lockdown has been extended to 14 May.
• Infection rates are rapidly rising in Germany, France, Poland, as well as other EU member states.
This will continue to have a negative effect on the growth prospects for the EU in 2021.
And wait for it…
According to the GCEE, there are even talks of a potential 3rd wave to hit Europe.
And with the lag on the vaccination programme, the continuous lockdown restrictions and the potential of a 3rd wave, this will weigh in on the euro.
Analysts at the National Australia Bank (NAB) said:
“The weak point in Europe remains around the vaccine rollout amid the rise in new virus cases and the tightening of restrictions ... which likely means the mooted acceleration in Q2 may have to be pushed back by a quarter.”
And what I see happening on the chart is even more disturbing.
This Inverse Cup and Handle is showing a 500 pip drop
Above, is the daily price chart of EUR/USD.
Since 18 November 2020, it has formed one of the bearish breakout patterns.
It’s called an Inverse Cup and Handle formation (shaded area).
This pattern resembles an upside down Cup with a Handle and consists of three main parts:
Part #1: The cup (Big rounding bottom on the left side)
Part #2: The Handle (Small rounding bottom on the right side)
Part #3: The brim level (low level).
Last week, we saw the Inverse Cup and Handle pattern finally complete, and then break below the Brim level at 1.1840.
When the price broke below this support level, this attracted more selling which sent the price down further.
And based on the factors I’ve mentioned today, it looks like we’re in for some euro downside.
If we use the High-Low calculation approach, we’ll find the next price target for the EUR/USD.
Here's the calculation:
Price target = Low - (High - Low)
= (1.1840 – (1.2340 – 1.1840)
= (1.1840 - 0.0500)
= 1.1340
This means we can expect the euro to drop 500 pips.
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Here are two ways I’ll profit from the euro correction
First, I can short (sell) the EUR/USD and hold it until it hits my price target at 1.1340.
Second, I will be watching Pickpocket Trader’s ideas. He has been taking full advantage with the downside in the European markets.
Just the other day he banked a double-digit gain on Hugo Boss (German company) short selling trade.
He also banked a 124.14% gain on the German airline (Deutsche Lufthansa).
And he’s just gone short Hugo Boss again as of last week…
Trade well,
Timon Rossolimos,
Analyst, Red Hot Storm Trader
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