Currency: the recent rise in the euro

The dollar has been in freefall since the beginning of June 2010 and the trend is looks set to continue. The dollar index plunged from 88 points in June 2010 to 76 points in October. This downward trend continues with the moving average falling to 200 days. At the same time, the euro rose from 1.19$ in June to its present 1.40$. This summer, fears of a double dip drove investors to back off from the dollar and, more recently, new quantitative easing measures have impacted on the international currency! In parallel with the Federal Reserve's new bond-buying spree, the euro accentuated its comeback with a booming IFO business climate index in Germany. Alongside the rise of the single currency against the dollar, the Japanese monetary authorities intervened to support the Japanese currency, which continues to set new records. The eurjpy fell to 105.46¥ and the yen pursued its seemingly unending downward slide against the dollar to reach 80.40¥ by the end of October 2010. Squeezed between these three global currencies, the euro has been pushed on an upward trend despite the European nations' debt crises. However, the budget crisis is changing shape: the Spanish government hit hard with its recent austerity plan, for example. Spain really wants to change its image which is too closely linked to the PIIGS. Thus, despite Ireland's poor economic performance, the single currency is strengthening and could return to its January 2010 level at 1.4371$, corresponding to Fibonacci's 76%, or even to last year's 1.51$ high. * Graph: Dollar Index, April-November 2010 - Source: Bloomberg