Euro and pound gaining legs

By Pete Southern in LiveWire Economics Blog | July 21, 2009 9:51 |

After taking brief dips against the dollar, the major European currencies have surged again in the last week. The Euro has bounced firmly after dropping to just below $1.40 on July 15th. One Euro is currently (July 20th) worth $1.4207, after trading near $1.425 earlier in Monday trade. The British Pound now fetches $1.6504 after an earlier high of $1.6555 in Asian trade. The Pound has shown a similar bounce to the Euro, but it started to gain ground after touching down near $1.625 on the 17th.

There has still been no strong directional development in any of the major currencies against the dollar in some time. The Euro, Pound, and Yen, all for instance, have traded in a relatively narrow range over the last several months, mostly moving up and down with modest swings.

Until any country’s economy seems definitively close to recovery, speculators are unwilling to catapult currencies one way or the other. Most major world economies are still struggling with sluggish economies, bad credit, slumping housing markets, unemployment, and more.

Mostly, currencies have moved with some short-term momentum pushes following either positive or negative economic events. With regard to its position against the Euro and Pound, the dollar has been mainly directed by oil speculation. Last week, oil dipped below $60 per barrel, briefly. This helped give the dollar strength. Oil is back near the $65 level, which has helped propel the gains of the Euro and Pound.

The dollar, all other things equal, generally falls against the European currencies, and others, in lieu of rising oil. As one of the most foreign oil dependent countries, rising oil and fuel costs contributes to a devaluing of the dollar bill as it costs American consumers and businesses more bills to get the commodity.

The Pound has traded in a very narrow 6-7 pip range since the last week of May, mostly trading up and down between $1.59 and $1.66. A significant break of $1.66 appears necessary for the medium-to-long term uptrend to continue for the Pound-dollar ratio. However, a 50 day simple moving average (SMA) line on a medium term chart clearly shows the trend pushing higher, unless the Pound reverses lower below $1.59.

Not surprisingly, the Euro has operated in a very similar range for the same period of time. Since late May, the Euro has bounced up and down between just above $1.43 and just below $1.38. While the uptrend doesn’t look quite as strong, the Euro-dollar ratio also shows a steady rise when placing a 50 day SMA line on a medium-term chart. A firm break over the $1.43 level could product a powerful momentum surge, with a break below $1.37 likely needed to reverse the long-term trend.

Who is benefiting from the current trading ranges? While the risky currency speculator will tell you that the best chance for gain is a significant long-term directional move, more conservative chart followers like to play the trade on narrow ranges to generate some income. Until one economy steps out from the pack, range traders might rule the currency game.

Neil Kokemuller
11:27 PM EST
Monday, July 20, 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.

Pete Southern About Pete Southern
Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.

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