So much for the sub-$1.00 Euro that some forecasters were calling for at the start of 2009. One Euro is now back to the level it started at as the New Year kicked off, with a value of $1.3933 currently (May 21).

Several top international and European banks had predicted that the Euro would suffer a downward trend against the greenback for 2009. During the first quarter, the forecasts seemed to have some merit, as the Euro lost about 20 pips from a range in the mid-$1.40s to a double-bottom around $1.25 in February and March.

Since its last drop to the $1.25 mark, the major currency of the European Union has catapulted for over two months against the dollar, with gains nearing 15 pips. Near and medium term charts definitely show a profoundly upward trend. The current 50-day simple moving average (SMA) for the ratio is about $1.33 for a Euro, putting the current rate about six pips above that point.

Where is the Euro headed next? It would be interesting to poll analysts to determine how many believe it is more likely that the Euro will topple its all time high above $1.61 before it gets anywhere near the $1 level. Obviously, reason suggests that since the current price is closer to the high mark, that would be the choice. However, currencies have shown the ability to make some major moves in the last couple years.

The Euro managed a fall from the $1.60 range in July 2008 to its first touch of $1.25 in late October – early November of the same year. That is a remarkable 35 pip drop in 3-4 months. Looking at things from that perspective, it seems feasible that the Euro could drop one-third of its value, or 45 pips, against the dollar to reach the $.95 mark some low-target analysts called for.

In fact, although short-term charts portray a strong upbeat move for the Euro, a look at longer-term charts paints a somewhat different picture. A two-year chart shows a range trade playing out since the powerful drop to $1.25 late last year. Visual inspective of the chart still shows a somewhat downward trend on a longer-term scale. The range is narrowing and it appears as though the Euro-dollar ratio could see a strong spin out in either direction soon. Perhaps a break up in oil, currently near $60 per barrel, would spark a surge in the Euro. Or maybe a huge economic surprise in the States makes the dollar suddenly a more viable option.

Higher oil and a generally weaker dollar are considered the drivers of the faltering dollar value lately. The Pound is nearing $1.60 as well, a level not seen for a long time. Many US-based global retailers have reported worse than expected earnings recently, with several attributing the weaker dollar in currency exchanges to the red ink in their profit reports. Travel, global partnerships, international expansion, free trade, outsourcing, and more business factors are affected by currency ratio changes.

Neil Kokemuller
11:59 PM EST
Thursday, May 21, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University. He is also in house stock market commentator at Live Charts UK, where you can find real time charts and share prices .

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.