EUR/USD looks like it might close the day above the downtrend that has been in place since mid-December when the hysteria surrounding quantitative easing slammed the dollar amid thin, year-end markets. Since having bottomed several times in the 1.27/1.28 area in recent weeks, dealers have been reluctant to short the EUR amid chatter from EU officials on the evils of currency volatility. EU officials seem very concerned that a weaker Euro could spawn a currency crisis which would heightened tensions between the highest-rated members of the currency union and its less creditworthy members (the PIGS).
Against that backdrop, as well as a recession of risk aversion (I’m loath to say the market is willingly assuming more risk), the euro tends to outperform as the dollar sheds some of its safe-haven status. Same can be said for the Yen and CHF. Will this reversion to the mean become a strong trend? I doubt it, but bear market rallies can be fierce in stock markets, as well as in currencies. Stay nimble and go with the flow. Today, a close above 1.2965 aregues for continued EUR/USD strength near-term. 1.3345 is the topside target.
