What?
The euro strengthened against the dollar by 0.46 per cent last week to close at $1.2994, the highest weekly close of the past month. As of last week an upward trend against the dollar is again in place. This follows a three-week downtrend that ended at a 1.2796 low.
Why?
An improvement in consumer confidence and inflation was reported last week for May, and there is an expectation that the Eurozone recession could end in the second quarter. At the same time the euro remains at some risk. On Friday the euro declined after a rise in the region’s unemployment rate and German retail sales fell.
What next?
For now further strengthening is signalled if the euro can get above last week’s high of 1.3061 to the dollar. It then targets 1.3146, followed by 1.3242. This near-term bullish scenario for the euro becomes less likely on a fall below last week’s low of 1.2983. More significant support is around 1.2796 as a drop below that price would put the euro at risk of falling through 1.2744, the low of the past 27 weeks. An acceleration to the downside could then follow.
What to do?
At this point the odds favour additional strengthening up to at least the 1.3146 price area. Alternatively, the euro becomes range bound against the dollar in the near-term. The important price range to watch for a longer-term view is the most recent peak of 1.3242, and support at 1.2744 on the downside. Until there is a move through one of those price levels it’s unclear what the euro might do in the following months.
Bruce Powers, Special to Gulf News
