Euro Strength versus Dollar 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 US 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, recognized that 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 US 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.

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What's been said:

Discussions found on the web:
  1. number2son commented on Apr 3

    ROBTV is to CNBC what Dostoyevsky is to Jonathan Franzen.

  2. costa commented on Apr 3

    How does on go about buying EUROS?

  3. Macro Man commented on Apr 3

    H&S are typically reversal, not continuation, patterns. In the case of the chart above, the H&S is the entire pattern: top, bottom, and middle.

    While EUR/USD may very well go a bit higher, prospective purchasers should be aware that a) strength above 1.40 is likely to meet with serious complain from Europeans, and b) the euro is even more overvalued than the dollar. Hell, even the US trade balance with the euro is improving

    Hint: it’s fairly clear against which currency the dollar most needs to decline!

  4. M.Z. Forrest commented on Apr 3

    I’ve been watching inverse point, rougly .75 Euros for 1 dollar. A few days ago, it finally closed below .75. It hasn’t crossed .75 interday in a couple days. Given the strength of this resistence point, I’m surprised it hasn’t crossed back over.

  5. tjofpa commented on Apr 3

    Awesome chart, Barry. Thanks.

    …but Mr. Market says “So What.”

    Who cares if the FeRN only weighs half a lb.
    Or if the looney reaches parity.

    As long as we can push $/Yen to 125.

  6. Norman commented on Apr 3

    And if it fails at 1.35? Back to 0.90? Why not?

  7. MarkM commented on Apr 3

    Wait a minute! Did the NAR pull the ol’ “revise down prior month/ claim present month gain” scam AGAIN?

  8. evden eve nakliyat commented on Apr 3

    very very nice informations thank you very much mr suma

  9. s0mebody commented on Apr 3

    If you are in fiat currency, you are in fiat currency. As an american, I see no reason to own the euro. My thinking is that if the world does hit tough times, the eurozone weakness should become more apparent and some countries might “defect” from the euro. It seems to me that Europe has followed the American business model of the last few years as well, namely loaning money out at ridiculously low rates to anybody, no questions asked. Imagine you are an American who owns euros and the shit hits the fan. You now have eurodollars in an America struggling through tough times. You might as well have toilet paper in your wallet.

  10. Teddy commented on Apr 3

    Macro Man, the US consumer has been on life support systems (bogus housing boom ATMS) since 2002 and is now brain dead. Isn’t it time to let him go?……….Does this grieving process have to go on and on? It’s time for the trade deficit to start to go down……and not a little dribble like you are describing and just like the previous times in the last 20 years and then back to debt peddling. Let’s bring back VALUE ADDED EXPORT GROWTH.

  11. BCS commented on Apr 3


    FXE is an ETF that holds Euros. One way to play it I guess.

  12. Leonardo commented on Apr 3

    If anything, this is an inverse H&S pattern and if true ‘could’ confirm an imminent break of the euro. However, I think we are just trying to fit a pattern to confirm the (mass) view that the dollar is to crash. Beware of falling prey to confirmatory bias. As an exampple, try and play this game and see if you can spot a random generated price pattern from an actual real price pattern. More importantly, checkout the stats section

  13. dark1p commented on Apr 3

    Even from the chart–and h&s patterns are notoriously great ‘hindsight’ patterns–it would make a stronger case for a reverse h&s if the euro falls to 1.15-1.10 or thereabouts. The shoulders marked are a tad arbitrary and could be marked differently.

    I’ve been reading Gartman’s daily newsletter for some time now and find it spectacularly unenlightening. Perhaps I’ve become too old and grizzled to be impressed by his observations. Could do without the knee-jerk political commentary, also.

  14. Macro Man commented on Apr 3

    Teddy, the alternative is that the other 95% of the population of planet Earth want their fair share of wealth. The income disparity charts that Barry posts work just about as well on a national, country-to-country level. The US has less than 1/4 as many people as China but an economy that is more than six times as large. That ratio is only moving one way, and it ain’t in favour of the US…

  15. eightnine2718281828mu5 commented on Apr 3

    Discussion on cnbc today re the euro bourses overtaking the US in total valuation.

    Of course it was yet another reason to rip on sarbox. They did allow that adding Russia/Eastern Europe might have tipped the scales somewhat, but strangely enough, not a mention of the relative valuations of the dollar/euro.

    What a joke.

    Sarbox is apparently an unalloyed evil, responsible for everything from our failure in Iraq to global warming. At least that’s what our overcompensated executives and their apologists are telling us at every (and I do mean *every*) opportunity.

  16. Teddy commented on Apr 3

    Macro Man, so where does the US go from here? Does its previously subprime mortgage debt become prime because other countries want a strong dollar to increase their exports? And does the housing market regain stability later this year because of this? 20 years ago the trade deficit increased because of a lack of savings, but now it goes up when US companies just up and leave.

  17. theroxylandr commented on Apr 3

    The EURO did not exist back then.

    How is this charted from nowhere?

  18. Damian commented on Apr 3

    Funny, when I look at the spot prices I see a very different picture….what’s the data source here?

  19. ManhattanGuy commented on Apr 3

    What do you “Bears” have to say about strong housing number and triple-digit gain in Dow jones index today?

  20. MarkM commented on Apr 3


    What strong housing number? Do you look at the actual data or read MarketWatch headlines?

  21. JustReading commented on Apr 3

    I’m not one of the “Bears” of which you speak, but I do read this board and I have done so long enough to recognize slippery NAR data when I see it.

    A) The “strong” housing number today came from the pending home sales “rising” 0.7 percent from January’s numbers. I quote “rising” since they first revised January’s number downwards before figuring how February compared. That’s an easy trick. If the number this month isn’t so hot, make last month’s number look worse and presto! This month’s number looks better.

    B) February’s numbers will get revised next month, also downward, so that March won’t look so bad. No need to get excited about what the NAR says the first time because you can be sure they will revise it later.

    C) This is “pending home sales” which means the contracts have been signed but the deal has not yet closed. Since many of them will fail to get the kind of financing they hoped for, or any kind of financing at all nowadays, many of these pending sales will drop by the wayside long before money changes hands. Revision time once again.

    D) The triple-digit gain in the Dow Jones index can be explained by the fact that the average reporter and average investor has no clue about points A, B, and C, but sure likes what the headline says.

  22. anderl commented on Apr 3

    Most reliable pattern, I don’t think so. In order to be reliable it has to break the neckline. Other than that its just a ranging market. Anyone read Edwards and McGee anymore?

    So I guess Barry is under the impression that the US Dollar index will go sub 80 then eh? Even though it is sitting on over 2 decades of support. Barry currency markets are heavily influenced by central banks in one way or another. The CBs lure traders and big fish in the direction they want the markets to trend. It does not help the macro economy to blow up Europe by putting them into deflation against and run the US into hyperinflation.

    What you should be looking at is the US Dollar is at the bottom of a range while the Euro is at the top. Forex is not the stock market.

  23. Caravaggio commented on Apr 3

    I don’t know if the tail (cable) will wag the dog (EUR/USD), but cable is awfully close to 2.0. A break through this level would certainly grab the attention of Joe Public here in the UK. It could also provide the impetus for EUR/USD to break higher, or vice-versa.

    …all this, and I am still short.

  24. John Thompson commented on Apr 3

    US dollar could be at bottom if Euro debt is anywhere near what Ingaborg from Germany tells me. Whole industrialized world is *#%&^*$ in debt.

    Have googled and wiki searched – no info on how far in debt Europe is. Isn’t this one of the reasons to be wary of our consumer – debt?!! What if Europe is &%$^&* too???

  25. Mr. Bubbles commented on Apr 3

    With regard to the utility of the head-and-shoulders pattern, “Evidence-Based Technical Analysis” by David Aronson (recommended by Barry) showed that it was worthless for stock trading, and only modestly profitable in currencies. For currency trading, it was far outperformed by objective signal-based zigzag filters. (pages 160-161)

    The problem with head-and shoulders patterns are:
    (1) lack of an objective, testable pattern definition (including vertical and horizontal symmetry, and pattern completion rules)
    (2) fractal scaling bias
    (3) look-ahead bias.

  26. sasso commented on Apr 3

    double top 1.47 at some point?

  27. John Thompson commented on Apr 3

    I don’t like over reading charts either.

    And I keep waiting for an answer on Euro debt compared to U. S. debt. Feellings and impressions about momentum and trends are definitely important these days, but I want to know what is LIKELY to happen (why I visit here) based on concrete factors. Example:

    Dip on shoulder chart occured after 911. That could spell why dollar so low? But hey, I don’t EVEN comprehend what “fractal scaling bias” could mean. I leave the posting to the “experts.”
    “Books – don’t trust ’em.” — Colbert

  28. sasso commented on Apr 3

    Just Reading – re: pend home sales revision. the revision was down .1% the feb look was 1.2% above consensus. that nets a 1.1% surprise. now if it’s the dumb reporter and individual investor accounting for everything, why does private equity continue to pay massive premiums to the market, to buy? believe me, I worry about housing, but in my small corner of the country inventory isn’t anywhere near as bad as last year, and sales have picked up in some outer ring suburbs that had been ice cold. They’re still building, so we may see worse in the future, but maybe the sky is falling folks are a little “early” again. Also, if ’06 vintage loans are the concern, and resets are cited, watch their benchmarks (shortend rates).

  29. ManhattanGuy commented on Apr 3

    Just Reading et all bears – Didn’t you guys expressed similar concerns last year when the housing market was weakening, but Dow made an impressive run in the 2nd half of 2006 (still on uptrend). I just feel that people here stay bear just for the heck of it and not trying to be realistic when looking at some of these data. Personally, I don’t think subprime mortgage issues are going to spill into other investment instruments.

  30. Nova Law commented on Apr 3

    The one principle that applies to nearly all these so-called “technical approaches” is that one should buy because a stock or the market has gone up and one should sell because it has declined. This is the exact opposite of sound business sense everywhere else, and it is most unlikely that it can lead to lasting success in Wall Street. In our own stock-market experience and observation, extending over 50 years, we have not known a single person who has consistently or lastingly made money by thus “following the market.” We do not hesitate to declare that this approach is as fallacious as it is popular.

  31. tjofpa commented on Apr 3

    “Treasurys end lower after pending home sales gain.”

    Man, that was one helluva mkt moving report today!

    So the FRN is rising and the 10 yr is falling…Hmmm
    Is Mr Mrkt saying we not gettin no rate cuts? What’ll that do to those valuation models? Sure feels like high PE is gettin dumped.

  32. David commented on Apr 3

    Macro Man is right about the pattern. In order for the pattern to be a head and shoulders bottom, the pattern first has to be … a bottom.

    My bet is that the EUR/USD has topped and is about to correct its 2000-2004 bull market. The correction of 2005 shaved 38.2% off the top before the bounce. I wouldn’t be surprised if a next leg down shaved something more like 61.8% off–with the EUR/USD flirting with par …

  33. V L commented on Apr 3

    Dennis Gartman often makes bizarre recommendations. For example, he is short oil but long CAD.

    There is strong POSITIVE correlation between oil and CAD/USD (Canada has benefited the most from the rally in oil) but Dennis trades them as there is NEGATIVE correlation.

  34. Winston Munn commented on Apr 3


    This is from the NAR today:

    “A forward-looking index based on pending home sales indicates that bad weather, and possibly the loss of some subprime lending, will dampen sales closed in March and April, according to the National Association of Realtors®.

    The Pending Home Sales Index,* based on contracts signed in February, stood at 109.3 – down 8.5 percent from February 2006 when it reached 119.4, but is 0.7 percent higher than a downwardly revised reading of 108.5 in January. Earlier, mild weather caused the index to spike at 113.3 in December.”

    Amazing – we’re just into April and the NAR already knows that “bad weather” will decrease home contracts – this is a Nostradamus-like qualitiy, and we should either be worshiping the NAR or burning them at the stake for sorcery.

    Down 8.5% YOY is something to rejoice in?
    The Fed drained from the liquidity pool and that sent stocks up?
    Oil fell to $64+ and transports jumped?

    None of the above: the interpretation, in my view, of todays market action was that there was no news that pointed directly to a reduction in consumer spending – and the market rose on the emotion that always propels the market forward: hope.

    When the bear market comes – and it will some day – Dante’s sign at the entrance to Hades will hang in front of it: Abandon All Hope Ye Who Enter.

    (Unless, of course, we have already entered the first leg of the bear market, which by the way is charecterized by high volatility and extreme reactions – kind of like today.)

  35. Kevin Rooney commented on Apr 3

    The EURO did not exist back then.

    How is this charted from nowhere?

    Pretty sure it is done by calculating from the values of the component currencies what the Euro would have been worth if it had existed.

  36. CM commented on Apr 4

    Costa, take a look at

  37. JustReading commented on Apr 4

    “I just feel that people here stay bear just for the heck of it and not trying to be realistic when looking at some of these data.”

    It’s actually just the opposite. People here are among the few who try to be realistic about the data instead of just looking at the headline trumpeted by the media. The masses saw yesterday’s headline about housing and thought it was good news. In fact, realistically it wasn’t good news.

    To be sure, considering the source and methodology of the data, it wasn’t all that newsworthy period. See the most recent article on this site for details.

  38. KBF commented on Apr 4

    I am wondering if anybody can present reasearch to make the case that H&S actually do work? I am also wondering if anybody can present a clear definition of a H&S.

  39. Jordan commented on Apr 4

    On the LT USD chart there is a H & SH pattern. On a break below 80, the target is 40!

  40. zero commented on Apr 5

    hello there!
    i’ve already seen this U.S. dollar head & shoulder stuff many times.

    unfortunately, (or fortunately), many traders don’t know that a head & shoulders is valid ONLY at the end of a trend, i mean FOLLOWING a previous trend. there must a be a trend to reverse,
    and obviously the left shoulder doesn’t count as “previous trend”!…

    this is NOT a head & shoulder.

    good jazz!

  41. allen commented on Oct 4

    Seattle housing will crush you

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