Euro Poised for a Breakout

By Richard Ilczyszyn and Phil Streible

The euro seems poised to make a breakout against the U.S. dollar, but the big question is which direction. It could go either way as we have global inflation, and at the same time, economic weakness impacting the currencies. We think a strangle is a good strategy traders can consider, this being the case.

At this time, we have a slightly bullish bias on the euro. The European Union’s one central policy is to fight inflation, which has kept them in tightening mode, strengthening the euro. The ECB last increased its refinancing rate to 4.25 percent on July 3, citing inflation. Inflation in the euro zone is estimated at about 3.4 percent this year, above the limit the ECB considers consistent with price stability. Money supply has been growing at a rate above 4.5 percent every month since May 2001.

Here in the U.S., there has been concern about mounting inflation as well, and speculation that interest rates are too low and need to move up to counter it. However, given the breakdown in the financial markets and the issues surrounding Fannie Mae and Freddie Mac right now, we don’t think the Federal Reserve is likely to raise short-term term interest rates at its next policy meeting on August 5, 2008.

Read full article, including the details of Richard and Phil’s euro trading strategy.