If a picture is worth 1,000 words, then in the case of the enclosed 11-year weekly chart of the EUR/USD only one or two are required to put the situation into perspective: WOW! Or, alternatively, YIKES! In recent days, I've noticed the inability of the euro to mount any sort of rally to regain Sunday evening's short-covering high at 1.3095, which at some point would bring in another round of "liquidators." Appropriately, the "long liquidators" emerged on a Friday, ahead of the European market close, and ahead of the start of the North American session. As of the open, the EUR/USD was pressing into new low territory and heading for a test of the prior significant low at 1.2330 (1 percent beneath current levels) from October 2008.

Let's notice that a downside violation of 1.2330 completes a massive 4-year top pattern that could "unhinge" the euro altogether and send it into a vertical tailspin towards 1.1640/50 on the way to parity with the US dollar -- a move that certainly will get the attention of the ECB and the Fed, which vowed to defend the integrity of the EC last weekend.

Should the aforementioned downward spiral in the euro emerge throughout today's session, we should prepare for intense and persistent Central Bank intervention, perhaps starting later today, Sunday night, and into Monday, as the "authorities" attempt to brake and preserve the euro as some (lower) price. This could get very ugly, and is a battle the Central Banks can ill afford to lose, lest the efficacy of the world's institutions be completely undermined.

ETFs to watch are Currencyshares Euro Trust (FXE) and the SPDR Gold Shares (GLD), which has tended of late to move in sync with the dollar.

 

Mike Paulenoff is a 26-year veteran of the financial markets and author of MPTrader.com.