The British pound shows that US stocks are about to fall hard: Technician

The euro's considerable rise against the British pound signals trouble to come for U.S. markets, according to Evercore ISI technical analyst Rich Ross.

The euro and the pound fell against the dollar after the U.K. voters opted to leave the EU, but sterling fell further, hitting three-decade lows against the dollar. According to Ross, the relative weakness in the British currency mirrors the euro's huge rally against the British pound from 2007 to 2009.

During that period, U.S. stocks plummeted. As a result, Ross is particularly wary of the euro's recent strength against the pound.

"This surge that we're seeing is breaking this multiyear downtrend, breaking out through that 200-week moving average," Ross said Tuesday on CNBC's "Trading Nation." "That could potentially spell problems for the S&P 500 and for risk assets [based on the past], so we want to watch that euro-pound."

Ross believes that the euro's strength against the pound could just be getting started.

"I think there could eventually be upside in the euro-pound to just around 86 cents, and that would likely correspond with further downside for risk assets like stocks, like the S&P 500," Ross added.

After initially slipping on the Brexit result, U.S. markets rose sharply on Tuesday to recover from Monday's losses.


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Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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