If you've been following the Forex markets over the past year, then you know it's been a wild ride! With a high of 1.4282 and a low of 1.1877 over the past 12 months, it's no surprise that many people have made a lot of money, and others have lost a lot! Let's take a look at where we thinking the value of the euro is headed.
Now I must admit – the euro has surprised me many times this year. As an example, this recent surge upwards made me a little off guard.
However, I did profit greatly from the sell-off that occurred in 2010. There were so many worries about Europe and the financial mess that certain countries were in (Greece, Spain, Ireland) and the markets were bearish on Europe in general.
I remember when the euro was selling off that many people around me were scared to go short simply because they thought it had already gone down so much. They figured it could not go any lower!
But this was an example of one of my trading believes – it pays to follow the trend until there's a clear reason not to!
The euro just kept tanking, and everyday there were more negative news reports and numbers coming out of Europe. There just was not anything positive coming out and I could not see any reason why the world would think buying the euro was a good idea.
This recent surge in the euro (it's trading around 1.39 right now) is partly due to a US dollar selloff, and the possibility that the ECB will raise interest rates.
Many investors have been selling US dollars as they fear that what the US fed is doing in terms of monetary policy is the same as printing money, which should in turn devalue the currency.
The European Central Bank has signaled that they expect to raise interest rates very shortly. This appeals to people seeking higher yield investments, so the Euro rallies as they expect there will be more demand for euro denominated investments (and then more demand for the currency).
Personally, I find it hard to be long euro. There are a number of countries that are in bad – no AWFUL – financial states. There is a real risk of at least one country having to "declare bankruptcy" and there really have not been many positive financial numbers coming from Europe. The US seems to be rebounding at a better pace.
I'm going to wait until the next rate decision announcement by the ECB. I suspect they may raise rates at that time, causing another spike in the euro. At that point I will likely sell as I suspect the European zone has many challenges ahead.