Though Euro sentiment turned overwhelmingly bearish last week, traders are warned that the market is approaching identical price action similar to that of Feb-Jul 2011. (Grey ellipses on chart-5). This will not only constitute wild choppy swings in both directions, that are impossible to short, but if the principle of alternation is to go by, there will be an ultimate cycle breakout higher.
Its true that debt restructuring in Europe, and possibilities of "systematic debt decimation in periphery countries" will continue to take their toll on the Euro - long term. It is also true that Europe is far back in dealing with the debt bubble than the US, which is opting to solve the problem by continual monetizing of debt. But there are two residing factors that continue to cushion the Euro's fall:-
1- So long as QE/4 (the FED's monthly purchasing program) remains in force, the Dollar is systematically being weakened against the Euro on a monthly basis.
2- Monies from the purchasing program, ultimately feed into the Equity markets, propping up risk -on asset classes, which directly correlate with a rising Euro.
These two macro factors account for the Euro's resilience against the Dollar, when compared to the Sterling which has tumbled. Note the Euro, has shown steady fast resilience despite fears generated from Italian elections & a mounting potential for a rate cut by the ECB.
Fundamentally therefore, there are reasons for the current correction in the up cycle, this time round, to support above the up trending advance line (shown in red on chart-5), and ultimately take out the bullish translated neck line (shown in blue on chart-5).
As commented on the Chart, this bias remains strong so long as the positive hidden divergence with momentum holds, and daily momentum does not fall into over sold negative territory. The trader needs to keep this acutely in perspective, so he/she are not caught on the wrong side of the market, if taking short term shorts. And when taking longs, to observe that market does not close for sustained periods below the progressive 1-4 Red line shown.