After Six Long Weeks, The Euro Is Back Above Parity With The Dollar

After Six Long Weeks, The Euro Is Back Above Parity With The Dollar
Luke Suddards

over 1 year ago1 min

This could be a big week for the euro. It traded back above the 1-for-1 parity level with the US dollar on Wednesday – its first time in six weeks – and a few technical signals suggest it could soon grow even stronger.

See, the euro has just moved decisively above both its long-term descending trend channel (downward sloping white lines), and its 50-day simple moving average (yellow line), having been stuck below both since February. And if it begins trading for more than $1.005, the chart suggests we could see an even steeper move higher.

And that could well happen sooner, rather than later. That’s because this latest move isn’t just about euro strength (though investors have been happy about the milder winter temperatures that are taking the edge off of the continent’s energy crisis). It’s also about dollar weakness. Yields on the benchmark US 10-year Treasury have been sliding, and that narrows the difference between what investors can earn investing in US bonds versus EU ones, and that’s had investors selling off dollars in favor of euros. What’s more, the European Central Bank (ECB) is likely to announce its second-straight 0.75 percentage point interest rate hike on Thursday, raising its key rate to 2% – a move that could add to the euro’s allure. Even more important will be what the ECB says about future monetary policy moves.

To bet on further strength in Europe’s common currency, you could reach out to your broker or consider investing in a euro-focussed fund, like the Invesco CurrencyShares Euro Trust ETF (ticker: FXE; expense ratio: 0.4%). But keep an eye on the euro: if it drops back below the 50-day moving average and into the downward channel, the picture becomes different, and more bearish.

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