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Currency Analyst since 2010

EUR/USD: how far up?

The main question that interests investors these days is – how far up can EUR/USD rise? The pair rose by more than 8% since July and has reached 2-year high at $1.3830 today retracing 61.8% of the decline from 2011 to 2012.

It’s widely agreed that the main factor to drive euro lower should be the European Central Bank. The last time then Draghi talked EUR/USD down was in February, when he said that if the single currency keeps appreciating, it may change the central bank’s view on price stability. The pair rose as high as $1.3700 that time.

The European policymakers have already started to complain about higher EUR. For example, France’s Industry Minister Arnaud Montebourg said this week that “euro is too expensive, too strong and a little too German”, while it “should be a little more Italian, French, and simply European.” The euro area clearly needs weaker currency as exports represent the main driver of the region’s economic recovery.

Traders are now focused on the $1.40 area and it doesn’t make much sense to go against the trend now taking into account the expectation of the Fed’s delayed QE tapering. However, the worries about the ECB will strengthen ahead of its meeting on Nov. 7. And we all know that Draghi is a master of sending messages to the market. Pay attention to the COT trader’s commitments data: it’s been a while since we got this information and the report may show that EUR longs have become quite stretched.   

Elizaveta Belugina, FBS Markets Inc.

 

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