What's next for the euro?

The euro did manage to poke modestly above $1.32 this past week, but not strongly enough to stay there at the close of the week (closing at $1.3199). Basically, the euro is "hovering" near the $1.32 level waiting for major players to either push it higher or push it lower. Traders and short-term speculators can push the euro up and down within a relatively narrow range, but have to wait for the major players to do any heavy lifting. Now we wait and see if any of those heavy-lifters show up any time soon.

One impetus for the euro pushing up against the top of its trading range is a belief that the Fed will soon cut rates, which would in theory make U.S. debt instruments incrementally less attractive than euro debt. That's the theory, but the Fed is not likely to cut rates any time soon and maybe not even over the next year, so short-term speculators who have pushed up the euro will likely grow impatient and abandon some of their long-euro/short-dollar positions.

I wouldn't be surprise if speculators managed to push the euro up into the $1.33 to $1.35 range in the next few weeks, but it is just as likely that they will trade it back down under $1.30 as soon as people grasp the truth that the Fed is unlikely to cut rates over the next six months.

-- Jack Krupansky