June 16, 2010

Is The Euro Catching The Curve?

The Euro made a nice little recovery since the June 7 when it reached the lowest point in 4 years.  At the end of European trading on Wednesday, the Euro was holding above 1.2300 which is about 3.5% up since early last week.


Looks like the Euro has been catching a nice ride on this short-term uptick so far.  Indeed, the massive selling pressure in this worst crisis of Euro confidence has decreased - thanks in part to the media attention which has shifted somewhat to the BP oil disaster.  Or was it the soccer world-cup which seemed more pressing and led hedge fund managers to cover some or their short positions? 

Jim Rogers, the famous hedge fund manager, announced his contrarian move last week:

“Everybody is so bearish about the euro that it looks like now is a good time to buy the single European currency.”

And he did indeed follow through on his announcement confirming his trade in an interview from Madrid on Wednesday:

"I bought the euro Friday and Monday, I don't know if it's just a trading bounce or if it's going to be fundamentally sound from now on"

Whether Jim Rogers is just talking his book (as all traders do in fact) or whether this is a case of perfect timing, the Euro has indeed bounced a bit more to the upside since Rogers took his position. 

The more important question though is: where do we go from here? 

Fundamentally, nothing has changed since the darkest moments of the Greek credit crisis.  The Southern European nations are still facing the same daunting economic and fiscal challenges as they did a few weeks ago.  Further, we don’t see any signals indicating that the announced austerity measures throughout the Eurozone would turn things around, nor that these measures would in fact be upheld.

Taking a look from a different perspective, technicians would point to the fact that the Euro has simply returned home to the current trend channel.  That channel however, is still sloping downward for now.


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