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Euro Rally Ripe for Reversal

Recent economic data in the U.S. have been mixed, and this does increase the chances for delays in policy changes from the Fed. But when we look at the broader environment, all indicators suggest that the Fed will be the first of the major central banks to unwind its stimulus programs.

Second-quarter GDP in the eurozone turned positive, at 0.3%, marking an end to 18 months of declines. But it is important to remember that these improvements have been largely unbalanced, with peripheral nations (Spain, Portugal, Italy, Ireland and Greece) not even close to approaching positive territory.

Unemployment remains elevated at 12.1% across the region, and all of this points to a diverging rate outlook and a weakening currency when compared to its U.S. counterpart. Use the latest strength in the CurrencyShares Euro Trust ETF as an opportunity to sell.

Euro Chart Perspective

The CurrencyShares Euro Trust ETF is trading above its 100-week exponential moving average, which is suggestive of positive momentum. But risk to reward prospects remain limited, given the price proximity to the June highs at 132.90. Technical bias is lower at this stage, unless we see a weekly close above this key historical resistance level.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Cox is based in China, and has lectured at several universities there on international trade and finance, focusing primarily on macroeconomics and price behavior in equity markets. His articles appear on a variety of Web sites, including MarketBulls.net, Seeking Alpha, FX Street and others. Investing strategies are based on technical and fundamental analysis of all the major asset classes (stock indices, currencies, and commodities). Trade ideas are generally based on time horizons of one to six months.
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