The Euro: Prosperity or perdition?

The consensus forecast today for the Euro/dollar (EUR/USD) is a move up to 1.5000 and probably higher—perhaps a test of the July 2008 high above 1.6000. But this forecast is based on few facts and questionable assumptions.

All forecasts entail creating a scenario for the most likely outcome. Sometimes it’s all too easy to convince yourself a scenario is highly likely given certain facts and reasonable assumptions. But in a crisis situation such as today’s, not even “facts” are reliable and just about every assumption should be looked at with suspicious eyes.

These are the times we question whether what we think we know is true, and wonder whether what we don’t know is going to jump up and bite us on the nose. This is true of fundamentals and technicals alike.

It shows the EUR/USD on a weekly basis. The Euro uptrend from the 2000 low to the 2008 high is clear. The precipitous drop starting in October 2008 is equally clear. In retrospect, the government allowing Lehman to fail on Sept. 15 was the trigger for the Euro’s fall, which was really the dollar’s rise. Fear and greed were replaced by fear and more fear, and the dollar became a safe haven. Now that the shock of the Lehman failure is fading, the Euro/dollar price is returning inside its “normal” channel. This is the basis, in part, of forecasts calling for the Euro to continue rising and for the price to meet 1.5000 around year-end and test the old July high of 1.6038 at some time during 2009.