It’s a Bear Market in the Euro

Lower highs and lower lows“… that’s the new theme for the pan-European currency, the euro. It’s also the definition of a bear market.
Some readers wonder why we cover the price action of the euro in our notes. They don’t realize Europe is the world’s largest economic bloc… even bigger than the United States. What happens with its currency, and its big debt crisis, is just as important as what happens in America.
#-ad_banner-#Back in late August, we highlighted the euro’s “compressed” state. This is a situation where an asset‘s day-to-day volatility gradually dries up and the highs and lows move closer together. These low-volatility periods are often the calm before a storm. We expected to watch the euro’s compression resolve itself to the downside.
That downside move came. The euro plummeted from 1.45 to 1.32 (a giant move for a major currency). It then staged a relief rally, which we identified as a good place to short. As you can see, we were right again. The euro’s rally took it to a lower high and then broke lower. It is now locked in a series of “lower highs and lower lows…” which is bad news for this important paper currency… and good news for gold owners.