Tuesday, January 29, 2013

Euro Steady vs US Dollar But Expected To Rally Further

The Euro stabilized close to an 11-month high against the US Dollar during trading on Tuesday and now looks set to extend gains over the next few days.

The outlook looks rosy for the Euro thanks to growing investor confidence and an all round optimism surrounding the Euro Zone.

Most analysts believe that the Euro could stall temporarily but expect traders to interpret any upcoming dips as opportunities to enter the market long.

Earlier today, the Dollar dropped against most of its 16 major peers. Investors are divided on whether the Federal Reserve will announce a change to its asset buying program after its two day meet on Wednesday.

Many expect that that the Fed will reiterate, that quantitative easing will continue for some time to come and that optimism for a strong Dollar will fade.

According to minutes of the U.S. central bank's December meeting, officials had started debating an end to the bank's unprecedented bond buying, as early as this year.

The minutes showed that participants were almost evenly divided between those advocating an end to the purchases in mid 2013, and those who want same to continue for a longer period.

Should it be that hopes for an early end to QE3 turn out to be unfounded, we can expect broader Dollar selling pressure to take hold.

The U.S. Conference Board's index of U.S. consumer sentiment, a measure of confidence among U.S. consumers, is now expected to have declined this month to 64, from a 65.1 reading in December. The data is due out today.

The Dollar earlier stood at $1.3458 per Euro and rose by a slight 0.1% to 90.90 Yen. The Yen dropped by 0.1% to 122.35 per Euro.

The Yen's decline is attributed to a rise in Asian stocks and lower demand for currencies of nations with low yields.

The Yen has fallen by 6% this month, while the Euro and Dollar have gained 2.2% and 0.2% respectively.

A report is due out today by the GfK SE (GFK) in Germany, which is expected to show a rise in confidence about Germany's economy.

I expect the Euro's strength to continue as against the Dollar in the weeks to come, as signs start to emerge of a strengthening Euro region economy.