It’s The Most Wonderful Time For The Euro (Usually)

It’s The Most Wonderful Time For The Euro (Usually)
Luke Suddards

about 1 year ago1 min

December is far and away the euro’s best month. Europe’s single currency has gained against the US dollar in 14 of the past 20 Decembers, and all of the past five. And it could happen again this year. After all, the energy crisis in Europe, which had been a major drag on the currency, has improved, with the continent seeing warmer temperatures and dipping into its energy stockpile at a slower-than-expected pace. Plus, the euro tends to do well against the dollar when risk assets like equities rally as they tend to do at the end of the year. What’s more, the dollar has recently been falling against its rivals, as investors bet that the Federal Reserve is nearing the end of its aggressive string of rate hikes.

On the other hand, the euro might not get its usual December rally. The currency’s been trading right around its key 200-day simple moving average against the dollar, and with many investors potentially using that as a sell level, the euro could have a hard time moving past it. Plus, a popular momentum indicator known as the relative strength index (RSI) shows that the euro has recently been treading close to what’s considered overbought territory, suggesting it may fall back down. Additionally, while the euro’s price has bit hitting higher highs, the RSI has been hitting lower highs – something called negative divergence. And that suggests the euro’s recent rally could be running out of steam. The next month isn’t likely to bring more cheer for the euro – January tends to be its worst.

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