As a followup to last month’s introduction to the newborn
European currency, here’s what may happen to the Euro.
n January 4, 1999, the 40odd
years of planning and 10 years of
political and economic work paid
off as the Euro began trading in
a calm, orderly manner. But
what’s the bottom line? How
will improved efficiencies from
a single currency affect Europe’s
competitiveness? When will the
Euro’s status as a reserve currency
begin to shift demand
away from US dollars?
The brandnew European Central Bank (ECB) is determined
to establish its credibility. Europeans, on the other
hand, having accepted large doses of fiscal and monetary
tightening to establish the Euro, are now ready for payback in
the form of economic growth.
In the midst of this uncertainty, it’s not so surprising that
the Euro initially put in a weak price performance. Starting
off at 1.1630, it quickly put in its high just above 1.1900 and
by mid-February had traded down to 1.1200. The fundamentals
will probably sort themselves out by summer. By then,
the economic slowdown in Europe will most likely be over.
In the meantime, cycle analysis offers guidelines regarding
time and price levels at which the Euro should bottom. Let
us apply additional technical tools, oscillators, and trend
indicators to develop a trading methodology for the Euro
using weekly cycles.