Where Will the Euro Decline End?

The fact that the euro rallied for only two days last week, makes us think that the wolf pack of investors and speculators are currently calling the bluff of the ECB on currency intervention – or at least they are testing, probing and trying to ascertain how determined the ECB is to prevent further euro depreciation, and at what level.

We are told the next big technical levels for resistance to the downward trend in the euro are at $1.23 US dollars to the euro, and then again at $1.18. With Tall Paul Volcker’s publicly aired concern of a eurozone disintegration on Friday, the $1.23 level is about to be breached. We believe currency speculators have a good shot at taking it down to the $1.18 level before the ECB drops in with a sufficiently large currency intervention measure, to effectively command the wolf pack to sit, and then stay, like the good doggies the eurocrats are trying to breed over there.

Our sense, however, is that initial efforts at currency manipulation by the ECB will fail. That means the $1.18 level will eventually fail as well, because wolf packs just do not take orders like domesticated dogs do. Consequently, we stand by our call that parity in the exchange rate between the euro and the dollar is the most likely ultimate stopping point, possibly as early as late summer.

Rob Parenteau
for The Daily Reckoning