Is the Euro Rally Coming to an End?

More folks are going long on the euro than they have at any time since 2007. The upward run of the shared European currency has been impressive as the dollar sags. But is the euro rally coming to an end? Bloomberg says if you examine the technicals the euro’s rally may be near its peak.

While it may not be apparent at first glance, the euro is beginning to show signs of peaking.

A series of technical indicators are pointing toward a near-term top for the shared currency, and even raising the risk of a correction versus the dollar after climbed to a 30-month high Wednesday. That may seem hard to fathom after traders said the Federal Reserve policy meeting left them with a dovish outlook, but some popular market gauges suggest taking a closer look.

A J. Welles Wilder study, the relative strength index, shows the euro overbought on a daily and weekly basis. The weekly RSI reading of 72.50 is the highest since November 2007, a few months before the currency pair reached an all-time high of $1.6038.

All things that go up eventually come down and that applies especially to overbought currencies. There are good fundamental reasons for the euro rally but traders may have gotten ahead of themselves due to the chaos that is the current US presidency and the circus that is the current US congress. The dollar rose against all currencies after the Trump election based on promises of tax cuts, infrastructure spending, deregulation and massive repatriation of offshore corporate cash. None of that has really come to pass as Republicans in congress fight among themselves and the presidency is focused on defending itself or deflecting attention from investigations into collusion by the Trump campaign with Russians to sway the US election. That alone is probably the wild card for the dollar and thus for the EUR USD currency pair. Despite all of the theatrics by the president and all of the attention by the media nothing has come up so far that would lead to a different US president and midterm elections that change the composition of congress are a year and a half away.

Not So Much the Euro as the Dollar

NASDAQ writes that while the euro rally pauses the dollar still is weak.

Euro came under pressure on the first trading day of the week after EZ flash PMI readings printed weaker than expected across the board.

With the exception of French Manufacturing PMI all the flash readings missed their mark with composite PMI for the region coming in at 55.8 versus 56.2. This is still comfortably above the 50 boom/bust level and shows that the expansion in the region remains on pace, but the rate of growth has clearly slowed.

There are always two sides to trading a currency pair and even as the strength of the European economy starts to plateau there is enough concern about the US economy, the US government and potential chaos in Washington that compared to the dollar the euro is still expected to go up.