USD Bulls Beware - The EUR is on the Rise

Friday, 1 October 2010

If you were one of those people who were predicting not that long ago that the EUR/USD would reach parity before Christmas, you're in a for shock. Much to the horror of USD bulls, the key currency pair is on the rise once again - and this time, it might not be the USD itself to blame.

The currency pair reached that fairly substantial level of 1.3600 overnight, and has since held that level quite well - dipping only for a short time before recovering completely today. On a technical scale, the current level is half way between the 33% and 50% retracement levels of the move from a high of 1.5200 to the low of 1.1900.

So, where to for the currency pair next? Well - it really is difficult to imagine much more upside after the recent debt crisis that shook the likes of Greece and Germany. The fact that those debt problems still exist would be reason enough for EUR bulls to be cautious from here.

But when you look at the other side of the equation - the USD - there really is absolutely nothing going for the reserve currency. The problem of course is that naturally this is problematic for the currency pair overall. With the USD gaining no directional bias, and traders not really responding kindly to recent observations made by the Federal Reserve, is the USD literally doomed for the rest of the year?

It might seem so. Interestingly, the talk out of the US really has no concern for the current level of the currency. Whilst the odd few commentators sometimes talk about the dangers of a low USD for the overall economy, there has certainly been no one taking a major stand and offering high strung advice on the issue.

It seems that even the US itself has fallen out of love with its own currency. And when that happens - you know that its going to be bad news for the coming months and quarters ahead.

The reality, despite all of this talk of doom and gloom, is that there is very little that could possibly cause the USD to rise substantially.