Euro Continues to Fly High
Posted on March 5, 2008
Filed Under EUR/USD, Fundamental Analysis |
We are halfway through a week in which we have already had fresh highs and new lows for the euro and the dollar respectively. The euro almost achieved 1.53 on Monday and judging by the charts there is no reason why it could not climb to 1.54 and onwards to 1.56 or even 1.57.
The reason? As always chronic dollar weakness, recession etc etc. However, and this is very big however, this week has seen more Eurozone officials start a muttering campaign about the importance of dollar strength. These officials have included Juan Manual Barroso, the President of European Commission, who is supposed to stay out of such discussions to the various finance ministers of Belgium and Luxumbourg. The mutterings can be taken both as laying the groundwork for a cut in interest rates later this year as well as hints that all is not well within the euro club.
The tension within euroland is essentially between the countries and economies of the North, ie Germany and Scandinavia and the rest, with France somewhere in the middle. Signs of this tension have included the liquidation of over half of Italian and Greek bonds while currency strategists have been signaling a possible rise of the euro to 1.60 which is way above even Germany’s pain threshold.
As I have said many times before the value of the euro will ultimately be determined by the politicians of Europe and the ECB will simply be sidelined. Some interesting numbers to watch include: December euribor interest rate futures are priced at 3.51%, down from 4.10 at the beginning of the year.
For short term traders look to buy the euro against the dollar on dips back at 1.50 but with tight stops. Do remember that tomorrow we have an interest rate decision and speech from Trichet so expect some fireworks.
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