Spring Brings Rosy Prospects for Euro

 | Mar 15, 2017 | 2:00 PM EDT
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This commentary originally appeared on Real Money Pro on March 15. Click here to learn about this dynamic market information service for active traders.

The euro has been utterly boring in recent years. After a glorious decline against the dollar in 2014/2015, the currency has flat lined into a low volatility slumber. However, we've been following the euro long enough to know this won't always be the case. We also recognize that the euro hasn't been under par ($1.00) with the U.S. dollar since its inception.

Despite unfavorable interest rate differentials, which are likely mostly accounted for in current pricing, we believe the euro is forming a base and the long-term prospects are rather rosy for the European currency. Further, we see short-term seasonal support, which could give it the boost it needs to breakout of this slump.

Source: MRCI

According to data provided by Moore Research Center, Inc., the previous 15 years of data suggest a strong tendency for the euro currency to rally throughout the months of March and April. Specifically, MRCI points out that the June euro has rallied from April 13 through May 4 on 13 of the last 15 occasions, giving it a win percentage of 87%.

Of course, past results are not indicative of future results, but we can all agree there is a pattern to be respected. Further, the risk in the euro is probably to the upside for the time being. Although the euro can certainly weaken further, the downside appears to be limited while the upside potential is wide open.

Source: QST

The weekly chart of the euro currency futures contract traded on the Chicago Mercantile Exchange paints a similar picture of potential strength. From its 2014 peak to the 2015 trough, the euro declined from the $1.40 area to $1.05, a substantial move to say the least. Since then, the euro has managed to find support in the $1.04/$1.05 area.

The most recent test of support came in December. Since then, the euro has been sluggish, suggesting we might see another retest of support, and possibly slightly lower ($1.04 or even $1.03 area) before a sustainable and substantial rally can occur. Accordingly, we like the idea of getting bullish in large dips in the euro in the coming weeks (should the opportunity arise).

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