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As we look back on the week just gone, it has a very familiar pattern to it, the view is of yet another good week for the Euro, and another disappointing week for the dollar. We have all here at ForexLive, been banging on about how you just can`t argue with this now established trend, and the fact that recent price history is such a huge factor in influencing short term opinion, and that remains true.
The accelerated strengthening of the euro against sterling last week (in the context of the underlying and improving nature of the UK economy) however, did make me think that perhaps the euro was getting a little frothy, and that perhaps some major drivers of euro strength, already included In the current price of the Euro/dollar exchange rate may be coming towards the end of their ability to further weaken the dollar, and strengthen the common currency. Amongst those are:
• The fact that European equity markets have been more attractive to underweight funds than previously thought. That balance has gone a long way to being addressed.
• The recovery story in euroland has been mostly stronger than expectations.
• A largely benign reaction to the continued appreciation from the ECB.
• An assumption that no `tapering` from the FRB will take place this year.
• Continued uncertainty that the USadministration will be able to steer a way through the `new year, new deadlines` scenario.
The higher the Euro/$ rate goes, the more we question whether a continued move up is likely; whether the combination of good news about Europe and bad news about America, sufficient to have taken us up 10 big figures since early July, is capable of sustaining a further movement higher. A change in emphasis on any of the above points could make us reappraise. Certainly there is no opposition regarding precedent; euro/dollar has been higher, but the last time it reached a meaningful high (approaching the 1.50 level, in May 2011) the underlying growth and political outlooks in Europe looked a whole load better than they do now!
As I said, no arguing with the price action, but euro/sterling moving up as it did last week could just be a signal that we may be getting a little carried away, and nearing maturity for this euro/dollar trend at least short term. We may need some more of the Don`s `unknown unknowns` coming out of the woodwork to take us decisively higher!
The accelerated strengthening of the euro against sterling last week (in the context of the underlying and improving nature of the UK economy) however, did make me think that perhaps the euro was getting a little frothy, and that perhaps some major drivers of euro strength, already included In the current price of the Euro/dollar exchange rate may be coming towards the end of their ability to further weaken the dollar, and strengthen the common currency. Amongst those are:
• The fact that European equity markets have been more attractive to underweight funds than previously thought. That balance has gone a long way to being addressed.
• The recovery story in euroland has been mostly stronger than expectations.
• A largely benign reaction to the continued appreciation from the ECB.
• An assumption that no `tapering` from the FRB will take place this year.
• Continued uncertainty that the USadministration will be able to steer a way through the `new year, new deadlines` scenario.
The higher the Euro/$ rate goes, the more we question whether a continued move up is likely; whether the combination of good news about Europe and bad news about America, sufficient to have taken us up 10 big figures since early July, is capable of sustaining a further movement higher. A change in emphasis on any of the above points could make us reappraise. Certainly there is no opposition regarding precedent; euro/dollar has been higher, but the last time it reached a meaningful high (approaching the 1.50 level, in May 2011) the underlying growth and political outlooks in Europe looked a whole load better than they do now!
As I said, no arguing with the price action, but euro/sterling moving up as it did last week could just be a signal that we may be getting a little carried away, and nearing maturity for this euro/dollar trend at least short term. We may need some more of the Don`s `unknown unknowns` coming out of the woodwork to take us decisively higher!