March 03, 2010

Keeping a perspective on “Euro weakness”

When everyone was trashing the US Dollar in 2009 it helped, in hindsight, to keep a perspective on things.  As the world’s only true reserve currency, the greenback wasn’t going away that fast.  Similarly, in the midst of doom and gloom, it is important to step back and take a look at the journey of the Euro to get somewhat of a reference point.  Price history, as well as performance history are no indication of future results, you can read that much in every investment advisory disclaimer.  Yet, as the historic chart below illustrates, one cannot ignore the apparent, albeit erratic, up-trend in the value of the Euro versus US Dollar.


Regardless of where you might draw your long-term trend lines and whatever sophisticated technical indicators you may choose to employ in your analysis, the fact remains that the Euro today is still significantly higher than a decade ago when it was first introduced.  Further still, one can look at implied Euro rates from previous decades all the way back to 1972 and notice that, on average (using a simple 12 month moving average), the single currency is still higher than any of the average high-points of previous decades (see orange reference lines).


If we can agree that the Euro has been moving upward, one could surmise that it is approaching a half-way point in this rather wide channel marked by the blue trend lines.  Suppose that the Euro approaches this half-way point at around 1.3000, this then begs the Million Dollar question: “Is the glass half full or half empty?”

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