Dawn Meson

A “buying opportunity” for EUR/USD?

The dollar experienced a temporary surge against the euro early today as online forex traders anticipated an announcement that Congress had reached an agreement on the proposed bailout of Wall Street. EUR/USD had moved as low as $1.45599 before Sen. Christopher Dodd, chairman of the U.S. Senate Banking Committee, announced this afternoon that a “fundamental agreement” had indeed been reached. The reaction from the forex trading community was markedly ambivalent, especially in contrast to the stock market, where the Dow Jones had added just about 200 points as of nearly 3PM in New York; EUR/USD currently stands at $1.46150 and has moved primarily upward throughout the afternoon.

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As the ten-year chart above reveals, the past several months of EUR/USD price activity have been historically aberrant. Yet despite some worrying economic news and the likely impact of the bailout on the federal budget deficit, most currency trading analysts are either neutral or bullish on the greenback. FX Street’s Analysts Sentiment Index for EUR/USD shows 50% neutral, 33% bullish, and only 17% bearish. Daily FX likewise reports “effectively neutral speculative positioning” at this time.

However, Bloomberg has been reporting this week on some forex analysts who are emitting very distinct growls. On Tuesday, TD Securities economist Joshua Williamson said that U.S. deficit issues could push the dollar up to $1.95 per euro. And today, a research note from Citigroup called the current euro price dip a “buying opportunity.” The euro could move up to $1.53, according to the Citigroup report.

EUR/USD down over 2.1%

In today’s forex trading, the U.S. dollar suffered one of its biggest ever one-day losses against the euro on fears that the $700-billion bailout plan proposed by Treasury Secretary Henry Paulson will further exacerbate the growing federal budget deficit. EUR/USD stood at $1.4794 as of 6:41 EST, up from $1.4466 yesterday. Percentage-wise, the dollar was down over 2.1% according to Reuters Dealing, the largest one-day drop for the greenback since January of 2001. Since reaching a high of $1.3882 on September 11, the dollar has fallen more than 6% against the euro.

Mood Swings for EUR/USD

This has officially been the most volatile week for the global currency trading market since the Asian financial crisis of the late ‘90s. Interday trading of EUR/USD went through significant swings as the dollar gained ground on word that the U.S. Federal Reserve had chosen not to change interest rates, only to plummet against the euro on the shocking news that the federal government was rescuing American International Group with an $85 billion loan. The Bank of Japan’s decision to hold interests rates at their current level of 0.50% also contributed to the dollar’s decline in today’s forex trading. EUR/USD moved from 1.4121 yesterday to 1.4348 as of 4:18PM EST today.

Looking ahead, a bearish interest rate environment for the euro suggests that the dollar may actually gain ground despite perilous conditions in the U.S. financial market. A survey released today by Bloomberg also found forex analysts to be optimistic about the dollar, which they expect to benefit from a slowdown in European economic growth.

Euro over a barrel?

EUR/USD dropped to its lowest level in seven months during today’s online forex trading on news that the European economy had contracted by 0.2% in the second quarter. The declining price of crude oil has bolstered the dollar in recent days, helping the greenback to extend the gains it made against the euro in August. As of almost 5PM EST, EUR/USD stood at 1.4493, down from 1.4520 Tuesday. Forex analysts charting the trajectory of the EUR/USD over the past two years place the pair near its long-term uptrend support line of 1.4473.

The EU economic slowdown was attributed to several factors, including a decline in exports, consumer spending, and company investment. Crude oil fell to $109.46 a barrel on demand worries tied to the global economic slowdown and news from Royal Dutch Shell Plc and ConocoPhillips that Hurricane Gustav had not caused any damage to platforms in the Gulf of Mexico.

Falling oil prices are likely to increase pressure on the euro in the currency trading market over the coming weeks. Many analysts expect crude prices to plummet nearer the $100 mark, and BusinessWeek reports that some analysts are predicting a price floor of $80 a barrel.