Euro V Dollar Trends

The euro has continued to reach all-time highs in recent days, climbing to its latest record against the dollar during trading on Thursday 27 September. The euro reached a shade under $1.42, surpassing the previous high set just a day earlier.

The high value of the euro against the dollar chart has been triggered by the troubled US economy as a result of ongoing and well-publicised sub-prime mortgage woes, which have permeated through to the world?s financial markets. With a weak set of economic indicators predicted by analysts, dealers have been forcing the value of the euro seemingly ever higher.

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Us Dollar And Gold: Will The Elastic Snap?

The dollar is coming under more pressure as it weakens against a basket of currencies, which include the British Pound. Last week Britain reported an increase in inflation to 3.1%, which is above the government’s guidelines of 2%. This increase will prompt the Bank of England to raise the base rate in order to combat inflation. We think that there will be more then one rise and the first could be as high as half a percentage point. The US Dollar has already dropped to the 2 Dollars for 1 British Pound level and now looks like taking another battering as the pound strengthens. There are also those in the Euro Zone calling for an increase in rates as the German economy powers ahead. Not everyone in Europe wants to see this implemented as for instance the French have unemployment running at 8% and they would prefer a boost to their economy. However if the rates do up then the Euro will also be putting pressure on the Dollar.

Lets assume that the Dollar breaks through the ‘80’ level to say ‘78’ for argument sake, from its current level of ’81.5’. It doesn’t sound like too much of a drop if you say it quickly. However it represents a fall of 4.2%. Now if you were not you, but a Finance Minister of a foreign government holding a mountain of Dollars like the Chinese are holding, how do you feel? What are you going to report to your fellow Ministers? Your countries reserves have just lost 4.2% of a trillion Dollars! Do you intend to continue holding this currency? When will you say enough is enough? In our opinion that day has probably past and we suggest to you that more and more governments will be planning to reduce their exposure to the Dollar thus stretching the elastic even further and maybe to snapping point.

General Overview Of Australian Dollar (au) Market

AD is likely to continue the pattern it has been in since November 2004 — trading in a range almost exclusively between 7300 and 7900. The rallies and the dips have not been unduly volatile so they have generally been worthwhile. This should continue for some time yet because of the opposing cycle angles yet to play out. We refer to the cycles centred on C1 and C2 — one up and one down. Because markets respond to each and every cycle at some stage, it means AD will continue to trade up and down in the same range as we have had since 2004. The C2 centred cycle ends at 7570 on August 31, so we expect price to be there then. But C1 is a down cycle that does not end until January. So, we would expect AD to fall to the low side of this cycle before its end, or around 6700 in late November or December.

One other point of considerable interest is that the top AD made on February 2, 2004 (level 7868) falls where we have indicated (green dashed line at HEC). AD made a top at this level on May 11, 2006 (the close was precisely on this line). We think there is a very good chance AD will attempt to reach this level again because it happens to be a natural cycle resistance level, and because it is also a strong attraction zone in terms of cycle forces.

If AD does get to target 1, or even a little lower at IC2, it must represent a major top. On the other hand, markets returning to old long term tops often break up through these levels to start another bull market phase. We will know if this is the case for AD because a bull market phase would instantly be signalled by a break up through HEC!