Euro remains in uncharted territory flirting with the $1.37 level

A week ago I wrote that the euro was flirting with the $1.37 level, and now a week later that same statement holds. Traders did manage to briefly push the euro above the technical resistance level of $1.37 this past week, but profit-taking ensued and the euro was unable to close above the $1.37 level, with the June futures contract closing the week at $1.3669, less than half a cent above the prior week ($1.3628.)

We shouldn't take too much solace in the diminutive nature of that move since traders frequently take days and even weeks to "digest" any big significant move before a new trend emerges.

It would be absolutely no surprise if traders and speculators push the euro up above $1.37, but it is not an absolute "slam dunk" either.

There is no good economic fundamental reason for the euro to trading with this upwards bias, but strong anti-dollar investor sentiment has continued to ignore underlying fundamentals. Apparent current economic strength in Eastern Europe is not a credible comparison to future economic growth in the U.S.

For now, the euro remains in truly uncharted territory. It's now mostly a question of the level of speculative money flows. With a lot of people still misguidedly believing that Fed rate cuts are still likely over the next six months, the flows could be net-euro for some time to come. On the other hand, just a few good economic reports, persistently high energy prices, strong talk from the Fed about fighting inflation, and a strong hint of a rate hike in June or August, could quickly sap the staying power of any over-extended speculators.

$1.37 is within striking distance for euro speculators, but the shortness of that distance is far less important than the strength and durability of speculative money flows that can evaporate and reverse on a dime.

I wouldn't be surprised if speculators managed to keep the euro up in the $1.33 to $1.37 range for the next few weeks whenever there is any superficially bad news to focus on, 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 very unlikely to cut rates over the next six months.

If traders and speculators do manage to push the euro up above $1.38, I will have to review and revise my outlook for the euro, but we aren't there yet. For now, $1.37 is a tough barrier for the euro to break through in a convincing manner.

In short, the dollar is not "plunging."

-- Jack Krupansky