Is the EUR/USD Rallying? Recent Strong Currency Trades in Europe and the US have gained the attention of traders from around the world. As I type this, it is trading at an all time high and once again rising.
What is driving the EUR/USD Rallying? A look back to the past reveals that the EU and the USA were driven by geopolitical factors. Today, the same is true with the European Union. The US Dollar and the Euro have gained momentum and are likely to continue to do so into the future.
Currencies can’t be bought or sold, they can only be exchanged one time. Buying dollars and selling Euros will give you Euros. Buying Euros and selling Dollars gives you Dollars.
The reason the USD has strengthened over the past year is because the Euro is stronger than the USD. Now, if you are looking for an explanation as to why the USD has not strengthened, perhaps we should examine a few geopolitical factors. I believe it is a combination of a weak Euro and a strong USD. The Euro is undervalued relative to the USD, which is why the USD hasn’t strengthened.
Even though the Euro has fallen in value against the USD, it has maintained a strong strength of 1.13 against the British Pound. The Euro has maintained its strength against the Pound for most of this year. This is good news for any European investors.
Strong currencies are typically considered to be more stable. I believe the EUR/USD is among the strongest ever. More importantly, there has been some very significant positive currency trade recently. It is hard to find an indicator, but the EUR/USD is definitely rallying towards a multi-week high.
Strong currencies are generally attractive to foreign investors. The EUR/USD is currently trading in the green with a significant possibility of attaining and maintaining a multiple of at least one point over the coming weeks.
If this were the case for a number of months, we would certainly expect more investors to start putting money into strong currencies. This would be in contrast to the situation where the US Dollar has weakened, the dollar is not likely to strengthen and it is difficult to identify a long term, sustainable appreciation.
The currency rally is not expected to conclude for several months. The USD is in the area where a consolidation phase is now starting.
There are a lot of other events that have occurred in recent economic data which makes a strong rally difficult to sustain for more than a week or two. The majority of the major news events are likely to conclude in the first week of December.
For most investors, a strategy focused on just this event was most likely to be successful. We believe that most analysts will be predicting the rally to end soon.
As we enter the final month of December, the EUR/USD is likely to remain above one dollar. The EUR/USD is primed for another breakout and should reach a multiple of three over the coming days.