Major New Market Trends Brewing? Watch The Dollar And Euro

t has been very quiet in recent months in markets. Almost every market has been moving without major volatility. That could be ending soon, though, with new major market trends triggered by the two leading currencies: the Euro and the U.S. Dollar.

This thesis and, in general, our market vision, is based on what we tend to callintermarket dynamics. That is the phenomenon of a market starting a strong trend, and, with that, triggering trends in other markets.

Great examples of intermarket dynamics include the huge breakout in the U.S. dollar in 2014 which triggered an enormous drop in the price of  crude oil and, consequently, made global stock markets very volatile and weak. Another case is the early 2016 fear trade (stocks falling sharply) which resulted in a strong bid in gold, with precious metals miners shooting higher sharply.

Typically, new trends start once leading markets break through major resistance or support levels. That is why smart investors continuously follow how markets evolve. Investing is not about hoping or anticipating that a trend starts; it is about analyzing all markets, and identifying new trends as they arise. That requires continuous analysis and scenario analysis.

The two charts, right now, that are hitting major support and major resistance: the Euro and the U.S. dollar.

First, the Euro is testing its 2005 lows, as well as its 2010 lows. Note how a trading range between 105 and 115 points has formed on the Euro chart in the last 30 months (since early 2015). Right now, the Euro is trading at 116.6 points, the highest level since December 2014.

As a sidenote, this is an interesting case of how financial mainstream media tend to publish a lot of information but mostly irrelevant to investors. CNBC, for instance, wrote this week how the Euro could go to 120 points, which is interesting to know but does not add any value at all for investors. As the chart below suggests the 120 level is still resistance, so as long as the Euro does not trade significantly above 120 there is no change in trend whatsoever.