Green light Still On for the Euro, But Be Careful of What You Buy

Of all the high yielding currencies (which basically excludes only the Japanese Yen and Swiss Franc), the only one that did not fall against the US dollar today was the Euro. Not only is that a testament to the currency’s strength, but it is also a reflection of what could be to come for the Euro.

We continue believe that 1.50 is not only possible but probable. Three different ECB officials were on the wires today repeating everything that Trichet said yesterday about inflation and exchange rates. The view within the ECB appears to be very unanimous with inflation a far bigger concern than growth. Weber even said that the level of the Euro is not a factor in their monetary policy decision which can only mean that they don’t care if it strengthens further. Of course, there will be a point when they do care, but that may not be until the Euro surpasses 1.50. With Trichet’s comments this past week, the green light stays on for further Euro strength. In the week ahead the Eurozone economic calendar is comparatively lighter than the US calendar. We are only expecting the ZEW survey of analyst sentiment, German and French GDP and Eurozone consumer prices. Given that US retail sales and inflation data are due for release, the better buy next week may be the relative strength plays over than the EURUSD itself, such as EURGBP or EURCAD.