The past year’s huge ramp-up in interest rates has caused some of the market’s high fliers to come crashing back to Earth.
Add in the turmoil from bank collapses to an increasingly shaky economy, and many investors are confused.
Do they ride it out… or cash out and wait for all this uncertainty to unwind?
Yet there’s one interesting way to profit in times like these…
Big interest rate moves can offer massive opportunities in the currency markets. You just have to know how to trade them.
So today, we’ll check out the Invesco CurrencyShares Euro Trust ETF (FXE). This ETF enables you to trade the euro against the U.S. dollar.
Peaked and Reversed
The chart of FXE below plots the euro against the U.S. dollar. Each bar represents one week of price action.
When FXE is rising, that means the euro is outperforming (or is stronger than) the U.S. dollar.
And when it’s falling, the euro is underperforming (or weaker than) the U.S. dollar…
Invesco CurrencyShares Euro Trust ETF (FXE) — Weekly Chart
Source: eSignal
From 2019 into early 2020, the euro was slowly drifting lower against the USD. In 2019, FXE slid by 2-3%.
The Relative Strength Index (RSI) shows how little buying momentum there was throughout this period. It was stuck in the lower half of its range (below the green line).
However, that all started to change around April 2020 when the Fed sprang into action and cut rates during the COVID crisis. The U.S. dollar weakened quickly against the euro, causing FXE to rally strongly.
When FXE topped out in January 2021, it had risen 15% in just 10 months.
However, a diverging pattern (orange lines) from the RSI set FXE up for a reversal…
While FXE was making higher highs, the RSI peaked and started reversing, making lower highs from overbought territory (upper grey dashed line).
That fall accelerated as the RSI fell back into its lower range. And the 10-week Moving Average (MA, red line) crossed below the 50-week MA (blue line), with both MAs then heading down.
As we came into 2022, FXE was consolidating (red line) just slightly above its pre-pandemic levels.
Take another look…
Invesco CurrencyShares Euro Trust ETF (FXE) — Weekly Chart
Source: eSignal
But the Fed began ramping up its tightening cycle, strengthening the U.S. dollar. And the euro soon started another major leg down.
By the time FXE bottomed out in late September, it had lost 24% from its 2021 high.
Since then, FXE has again reversed, this time breaking higher to short-term highs.
So with that move now at a crucial stage, what can we expect from here?
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Short-Term Highs
FXE’s up move after its September low coincided with the RSI rallying from oversold territory (lower grey dashed line).
And the 10-week MA broke back above the 50-week MA (blue line), confirming that move.
Yet FXE’s up move peaked and reversed at ‘A.’ And the RSI made an inverse ‘V’ and drifted lower from overbought territory.
But then, the RSI bullishly bounced off support (green line).
Now FXE is fast approaching its recent high at ‘A’… right as the RSI is nearing overbought territory. So what happens here will be key.
If the RSI tracks along the overbought line without a reversal, then FXE could break above ‘A’ and rally to a new short-term high.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
P.S. As I mentioned today, currencies are seeing new interest in this market. After staying quiet for roughly a decade, shifting interest rates around the world are suddenly giving this market a comeback.
I’ve traded currencies since the ’80s. It’s one of the ways I’ve profited during my career, even when the stock and bond markets turned shaky like in 2008.
So if you’re interested in learning more about how to potentially make thousands each month by trading currencies – often called “forex” – then I’d like to invite you to my upcoming event on April 19.
That evening, I’ll share why this moment in currencies isn’t one to miss… and even talk about my favorite currency to trade right now.