Too Much of a Good Thing?
The end of the third quarter left smiles on the faces of Euro Currency bulls, as the 13-nation currency soared to all-time highs against the U.S. Dollar. This means that Dollar-denominated goods are cheaper for those holding Euros, and those vacations to Disneyland are now more affordable for European travelers. However, not everyone in Europe is happy about the currency’s strength – French President Nicolas Sarkozy is among the most vocal European leaders demanding that the European Central Bank (ECB) cut interest rates to stop the surging Euro. The belief is that the strong Euro is hurting European exports, with those supporting a weaker Euro citing a decline in German exports in July as a sign that a strong Euro is curtailing demand from American an Asian buyers. In addition, the spread of the recent credit crunch to Europe is also a cause for alarm, and may take some of the luster off the Euro as a speculative play.
Looking at the daily chart for December Euro Currency futures, we notice aggressive selling taking place after a new contract high was made at 1.4302 earlier in the session. The 14-day RSI reached extremely overbought levels on Friday, closing at 89.86 (readings over 70 are considered overbought). With prices moving up over 9 handles since the middle of August, a bit of profit-taking selling would not be out of line, especially if economic reports continue to show European business activities starting to slow. The next support point for the December Euro is seen at 1.4081, with resistance found at today’s highs of 1.4302. In early trade, December Euro Currency futures are trading at 1.4250, down 0.0043.
Mike Zarembski, Senior Commodity Analyst
