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EURO at highest level in 2 years, where to next?


Recently the US dollar fell to a two-year low against the Euro, hitting 1.3830 on growing expectations that the US Federal Reserve will continue bond purchases next year and that there will be no tapering in 2013. Tapering is the keyword being mentioned lately, tapering refers to the FED stopping aggressive bond purchases therefore removing liquidity from the financial markets.

Recent European data has been weak with European growth slowing and unemployment and PMI coming in much weaker than expected. With such weak data hitting the wires we wonder if it is justified to be a EURO buyer at 1.38, we think NOT.

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Millions of the young unemployed Europeans are experiencing hardship and dis-satisfaction as they have very little hope of securing a job in the near future. The rate of unemployment amongst those under 30 is still around 50% in Greece, Portugal and Spain.

The Euro at 1.38 is certainly high at this level and there is room for very little upside at this level. We prefer to be short at this level with our sights set at 1.36 and even lower in the next 1-2 weeks, setting our stop at 1.3850 for good measure.

European tourist destinations such as Greece, Italy, Portugal and Spain which rely on foreign visitors are certainly not helped with the Euro at a two-year high against the US dollar, and with those destinations in need of tourist dollars a weaker Euro will be welcomed.

The Euro has certainly benefited from the political grid-lock in the USA, with US government shutting down for nearly 2 weeks. Now that a deal has been made on the debt situation in the US and the government is again functioning attention is now back on the fragile state of the European economy and extremely strong currency.

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