Euro vs Dollar
The Smart Profits Report: Issue #409
Wednesday, April 4, 2007
Euro vs Dollar: The Three Technical Factors That Point To A Dollar Rebound
By D. R. Barton, Jr.
Quantitative Analyst, Mt. Vernon Research
On Monday night, I watched the University of Florida basketball team repeat as NCAA champs. In a tournament that featured numerous close games, Florida failed to provide any nail-biters. Its closest win on the road to the championship was seven points, and there was never a game that was in doubt going into the waning moments. Love ‘em or hate ‘em, that’s a run of total domination.
But while the Florida Gators were on their historic march to victory, within the euro vs dollar currency wars, the dollar has been taking a beating. The euro has eclipsed its December highs against the greenback and has its sights set on the historic highs of 2005.
Of course, this has prompted many pundits to roll out the usual “dollar is dead” rhetoric. But there’s one big problem with all the “death of the dollar” talk.
The only logical replacement for the dollar as the world’s primary currency of commerce is the euro.
But unlike those dominant Florida Gators, the euro (and the underlying economy of the European Union) is far from a strong performer.
Let’s take a look at the current dollar woes - but also why it might not be time to throw the greenback under the bus just yet.
The Dollar Is Down… But So Is Volatility
While the euro is re-testing its two-year highs versus the dollar, it’s doing so in a very quiet fashion. Take a look at the chart below, showing the euro in dollar terms. As you can see, the old highs from early 2005 are still 300 “pips” away. In currency lingo, a “pip” is the minimum move that an exchange rate can make (usually to the last decimal place) - which in this case is the euro/dollar cross rate).
The chart also shows three other key points:
- Euro Rising Strongly: With the euro rising strongly, the dollar is now at its weakest level against the euro in two years.
- Volatility Dropping: Volatility (the red line on the bottom half of the graph) is at its lowest point in the past five years. This means trading activity in the current environment is very measured and controlled.
- Momentum Fading: The MACD (Moving Average Convergence-Divergence) indicator at the bottom of the graph shows that as the price makes new highs, momentum is falling and diverging, failing to confirm the higher prices.
The bottom line here is that the technical picture does not cry out for a drop in the dollar.
In fact, it looks like the stronger technical case could be made for a near-to-intermediate term recovery for the dollar.
So Much For A European “Union”: How Long Can Euro Resist Regional Woes?
For each of the potential financial woes facing the U.S., it would be easy to identify one or two problems of equal or greater magnitude in the European Union.
Start with the issue of its still-fractured governance and move onto the region’s employment and GDP growth issues, and you can see that the dollar is certainly not struggling. In fact, the euro currently seems to be only benefiting from an “any currency except the dollar” mentality in the world markets.
Yes, it’s true that the dollar is far from a so-called “safe haven” right now. But the greenback also isn’t likely to fall off the cliff any time soon. And while it’s very prudent for you to diversify your portfolio outside the dollar, getting rid of all dollar-oriented exposure is certainly premature right now.
Great trading,
D.R. Barton, Jr.
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Today’s Smart Profits Cribsheet
- Dollar in the dumps? Not quite. The greenback chalked up a one-month high against the Japanese yen on Tuesday, and also rose against the euro and Swiss franc. The move came after a National Association of Realtors report indicated some surprising strength in the U.S. housing market, and dented the chance of a Federal Reserve interest rate cut. In addition, one group of traders sold 200 million euros at $1.3350 - a move that helped drop the currency 0.25% against the dollar on the day.
- The speed with which the global currency market changes makes it tough for the average investor to keep up and capitalize on the moves in this exploding investment area. Think about it. By the time you wake up tomorrow, any of the Asian currencies or the euro could have ballooned or tanked overnight - giving you no chance to take action.
- But did you know that you can cash in on the red-hot currency market and turn $10,000 into $410,889 without ever having to place a single trade on the foreign exchange? In a recently-published report, this Monaco-based investment expert will show you how he created a fortune by using a powerful strategy that requires just one transaction per year in foreign assets. Apply it today… and you could enjoy a 114% annual compounded return. Visit this link for full details.
Related Articles:
- Stock Market Direction: This Volatile Market Can Eat You Alive… Here’s What To Do
- Volatility Trading: Combat & Survive the Market’s Volatility Swings
- The US Dollar’s Next Move: Ignore The Dollar Doom Merchants - The Greenback’s Got Room To Run
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