Italy’s election fiasco was only the first of the week’s setbacks for the euro. 

The euro had another bad week.  The pep talk given by European Central Bank president Mario Draghi on Thursday gave the stock market a nice boost, although it did nothing for the euro.  While delivering a speech in Munich, Draghi defended the ECB’s accommodative monetary policy, although the euro continued to sink.  Wednesday brought the only advance for the euro during the entire week.  The rise occurred after the European Commission reported that its Business Climate Indicator for the Eurozone increased by 0.36 points from negative 1.09 in January to negative 0.73 in February.  The euro’s advance may have been a result of the language used in the EC press release, which actually misrepresented the reading, making it appear as though the Business Climate Indicator had skyrocketed to positive 0.73.  As of this writing, the error has not been corrected.

Italy’s hung parliament following its elections on Sunday and Monday raised fears that rejection of the ECB’s austerity mandate by the nation’s voters could cause a spike in bond yields.  Friday brought more bad news.  Eurostat reported that the unemployment rate for the Eurozone rose to 11.9 percent in January from December’s 11.8 percent.

The chart below depicts the trading activity in the CurrencyShares Euro Trust ETF (NYSEARCA:FXE) during the past 180 days  (Chart courtesy of Stockcharts.com).

The head-and-shoulders pattern which we saw forming on February 10 (see green bar on chart), has now evolved to the point where it could become the “head” on an even larger head-and-shoulders pattern.  As a result, even if FXE gets back up to $131.90 and remains there for a few days, it could be simply forming a new right shoulder, for a brutal decline to its 200-day moving average of $127.45.  If FXE remains on its current trajectory, it is within three trading sessions of falling to its 200-day moving average.

FXE finished Friday’s trading session at $129.17, which amounted to a 1.24 percent decline from last Friday’s close.  Last week, FXE fell below its 50-day moving average of $131.93.  Its Relative Strength Index finished the week at 33.25, compared with last week’s 37.78.  Its MACD has fallen below the zero line, suggesting more downward momentum.

Currency ETF Update: 

The following is a summary of how currency indices and ETFs performed from the close on Friday, February 22 until the close on Friday, March 1:

$US Dollar Index:  $82.31   +1.01%

PowerShares DB US Dollar Index Bullish Fund ETF (NYSEARCA:UUP):  +0.94%, This ETF reflects US dollar performance as indicated by the Deutsche Bank Long US Dollar Index (USDX) Futures Index (DB Long USD Futures Index).  The USDX Index invests solely in Long USDX Futures Contracts, and compares the performance of the US dollar against the Japanese Yen, the Euro, the Swiss Franc, the British Pound, the Canadian Dollar, and the Swedish Krona.

Euro Dollar Index-Philadelphia: EUR:  $130.19   -1.31%

CurrencyShares Euro Trust ETF (NYSEARCA:FXE):   -1.24%, This ETF is designed to track the performance of the Euro dollar.  CurrencyShares Euro Trust ETF (NYSEARCA:FXE) is a trust denominated in Euro dollars, and the depository bank is JP Morgan Chase Bank, N.A. London Branch.

ProShares UltraShort Euro ETF (NYSEARCA:EUO):  +2.47%,  This ETF tracks the 2X inverse daily performance of the Euro dollar in US dollar prices.  The ProShares UltraShort Euro ETF (NYSEARCA:EUO) relies on the EUR/USD cross rate as determined by Reuters by 4 PM EST to determine the price of the Euro in US dollars.

Australian Dollar Index-Philadelphia: AUD:  $101.95   -1.22%

CurrencyShares Australian Dollar Trust ETF (NYSEARCA:FXA):  -1.37%, This ETF is designed to track the performance of the Australian dollar.  The CurrencyShares Australian Dollar Trust ETF (NYSEARCA:FXA) is a trust denominated in Australian dollars, and the depository bank is JP Morgan Chase Bank, N.A. London Branch.

CurrencyShares Swiss Franc Trust ETF (NYSEARCA:FXF):   -1.41% This ETF is designed to track the performance of the Swiss Franc.  The Swiss franc is the national currency of Switzerland and Liechtenstein and the currency of the accounts of the Swiss National Bank, the central bank of Switzerland. The Swiss franc is the sixth-most-traded currency in the world, accounting for 6.4% of global foreign exchange transactions. The USD/Swiss franc pair is the fifth-most-traded currency pair.

Japanese Yen Index–Philadelphia: JPY:  $106.83  -0.81%

CurrencyShares Japanese Yen Trust ETF (NYSEARCA:FXY):  -0.15%   This ETF is designed to track the performance of the Japanese Yen.  The CurrencyShares Japanese Yen Trust ETF (NYSEARCA:FXY) is a trust denominated in Japanese Yen, and the depository bank is JP Morgan Chase Bank, N.A. London Branch.  Expect More JPY Volatility

Bottom Line:  Italy’s leadership void is just one of the many problems for the euro, as unemployment in the Eurozone hits disastrous levels in many of the member countries.   

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About John Nyaradi (http://www.wallstreetsectorselector.com) John Nyaradi is Publisher of Wall Street Sector Selector: Your Home For ETF Investing! John writes a weekly guest column, John Nyaradi’s ETF Edge for MarketWatch.com and his investment articles have appeared in many online publications including Trading Markets, Money Show, Yahoo Finance, Investors Insight, Fidelity, ETF Daily News, iStock Analyst , among many others. His book, Super Sectors: How to Outsmart the Market Using Sector Rotation and ETFs, is published by John Wiley and Sons and included among the Years Top Investment Books in the 2011 Stock Trader’s Almanac.