The technicals and fundamentals have me bullish on the Euro.
When it comes to currency, it is clear that the least ugly is the best choice. My fundamental bullishness on the Euro really stems from a neutral to bearish rating on the US Dollar. The prospects for the greenback continue to look grim in particular as the economy chugs along at stall speed or something less than that. Politicians and central bankers only have one lever and this is the money printing one. I can think of at least 4 headwinds for the Dollar: 1) President Obama; he has shown no inclination for fiscal responsibility, and we have 4 more years of these poor policies; 2) the Federal Reserve; the only tool they have is to devalue the currency, and we are likely to find out the meaning of “to infinity and beyond” as they consider even more bond purchases beyond what they are already doing; 3) the “fiscal cliff”; the resolution will only be another can kicking exercise; 4) the debt ceiling; close the government….a great idea but are you kidding me. The debt ceiling debate will be another opportunity to the kick can even further down the road.
Figure 1. FXE/ weekly
So within this dynamic for the Dollar we find ourselves bullish on the Euro, which has problems of its own. However, the technical picture is positive. See figure 1 a weekly chart of the Currency Shares Euro Trust (symbol: FXE). A close above 3 key pivots (red dot) is a bullish sign, and now we have a higher low (see arrow on chart), which is the start of a new trend. With a stop loss below the most recent pivot at 126.61 to 126.84 on a weekly closing basis, I expect FXE to make it to the next resistance level at 133.