From the October 01, 2009 issue of Futures Magazine • Subscribe!

The euro: How high will it go?

The euro had a strong run in September but analysts attribute the move more to U.S. dollar weakness than euro strength and expect the dollar to continue to dictate where it will go next.

“There’s not really a euro story going on right now, it’s very much a dollar story that is manifesting itself in strength in the euro,” says Brian Dolan, chief currency strategist at Forex.com. “The markets overall are betting on a recovery into 2010 and the risk appetites are staying firm. Stocks are at highs for the year, commodities are strong, the dollar is very weak and interest rates are testing the downside, which is a problem for the dollar.”

Dolan expects the euro to top out at $1.47-$1.48 around last December’s high.

“Seventy percent of the time, the way the Eurodollar performs in September sets the tone for trading the rest of the year,” says Kathy Lien, director of currency research at GFT.

Lien says if the Eurodollar ends September on a positive note, it will continue to rise through October and November. “It looks like the Eurodollar will extend its gains and there will be some resistance at $1.48-$1.50,” she adds.

Dolan says this year’s fiscal stimulus has had its biggest impact in the Eurozone, Australia and the UK. “In the U.S., it’s going to [take] more time to filter into the economy.” He expects the dollar to come back at the end of the year and the euro to move a bit lower.

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