EURUSD Flirts with All Time High: What Next?

Even though the EUR/USD hit a fresh all time high today, the currency pair’s price action has been unimpressive and this is where the currency and stock market differ. Inflated stock prices do not hurt a company but an inflated currency price does hurt an economy. The higher the Euro rallies, the more cautious currency traders become even if recent economic data supports the strength of the currency.

We are seeing this in both the Euro and British pound. Like the ZEW survey of analyst sentiment and the Belgium survey of business confidence, German business confidence also improved, driving the IFO survey up to 108.6 from 107.7. According to the IFO, robust global growth and strong domestic orders have offset any concerns about high oil prices, a strong Euro or the prospect of further interest rate hikes. These same factors should help to boost German consumer confidence and French business confidence, both of which are due out tomorrow. Stronger numbers will continue to keep the ECB on track to raise rates again in June.