Time To Short The Euro?
Posted on April 25, 2008
Filed Under EUR/USD, Fundamental Analysis |
Having taken a peek at 1.60 on Tuesday and the charts showing a move to at least 1.61 and beyond, the euro has reversed faster than Gordon Brown’s reputation for economic competence and is currently holding at 1.56, but falling. The reason has been given as weaker than expected economic data from eurozone as well as a sense that the worst may be over in the US - all the financial dirty laundry having now been washed the world can move on, while in Europe the banks have still to come clean about their losses. Credit Suisse has led the way this first quarter reporting losses of 2.5 billion swiss francs. Against this backdrop the ECB has continued with its tough talk on inflation with hints that interest rates would even have to rise. In addition claims by the Germans that Eurozone could live quite happily with an exchange rate of 1.6 should have added impetus to the 1.6 move. This last claim is, of course, a direct contradiction of their stance back in February when they let it be known that anything above 1.60 would not be welcome.
Has the euro really run out of steam? Well, maybe for the time being. Two important indicators which may help us make some sense of what is actually going on are the price of oil and the dollar index. The euro has been tracking the oil price relentlessly for some time, which is obvious given current dollar weakness, and whilst oil looked set to reach $120 a barrel and beyond, I actually believe we may see a major reversal in the price very soon. Secondly, the dollar index is showing signs of bottoming out on the daily chart and consolidation on the weekly. Any break above 73 will be significant.
A further signal that the euro would not continue upwards this week could be found in the chart of the dollar swiss where the dollar did not fall as much as it should have done (remember euro dollar and dollar swiss correlate negatively - as one goes up the other goes down). Rumours too that the FED will not cut interest rates next week has also contributed to this week’s move.
Finally, as I have said on many previous occasions the medium and long term fate of the euro is linked directly to the internal politics of the eurozone despite what the charts and ECB may say.
Given the lack of any significant economic data today look for any fall to 1.55 and watch the close on the euro dollar weekly chart. Good luck.
Comments
Leave a Reply