Wither Euro?

Less than six months ago, USD was being touted as doomed as Ben presses and choppers worked overtime. With so much of it around, the currency has to lose value, is it not? And Euro was obviously to be one of the saviours. 

Now amidst vociferous opinion on the Euro vulnerability, some of it calling for parity, let us take a step back and look at the long term picture (literally).. Ignore the labels if you are not an Elliott Wave enthusiast  here it is :

   

Clearly a major top has been established in 2008. Based on the subsequent rather large consolidation, I am looking at the following possibilities for Euro

(1) The LT bullish case : The last down move could end up as a failed wave (i.e. fails to exceed the low established previously) or extend into a upward sloping triangle ending at a higher low 

(2) The ST bullish &; LT bearish case: The corrective scenario is to be seen from 2008 low and we could have one more upmove before resuming the downtrend

(3) The ST & LT bearish case: We are continuing the correction from the peaks of 2008 and likely to see 2005 low (1.15) if not parity

My preference is for a ST bullish scenario. We are having that much more negative news on Euro than in 2008, but we are still above the sub-prime lows. That way, the downward price action is relatively weak. To me this is somewhat similar to Indian interest rates (normalising the yields). Whether the ST bullish will extend to LT bullish is a different ball game.

The LT bullish case for Euro is based on the belief that for most asset markets the "lows" are in place and the next major rally would come from a higher low. And if the corelation between Euro and other risk assets (which is high so far) holds further then this could well be the preferred scenario... (Would the corelations hold? Can we get a scenario of USD/Gold strength alongwith asset strength? That clearly is another valid poser!)

Have a good one...