MoneyShow's Jim Jubak evaluates the recent rally in the euro and where he thinks it will head after we get into the earnings season.
Remember a few weeks back, the euro was dropping like a stone against the dollar? We went through 1.15, 1.14, 1.12, and 1.10. We were at 1.08. Then we went down to 1.06. It looked like we're going to move to parity—that's one euro per dollar—very, very quickly.
That stopped really at the beginning of April, last bit of March. We've had what amounts to a move in the other direction.
What's interesting here is this is what you'd expect. You'd expect that after dropping so strongly, you get a period where you get a bounce. You get people who sold now buying, all of that.
The interesting thing here is that the bounce has not been much of a bounce.
Instead of bouncing back to 1.15, we've bounced from 1.06 back to 1.08, 1.09. This is not a big vote of confidence. This is a really, pretty anemic counter-reaction to the dollar's strength.
What we're looking at, I think, here is that as soon as we get past some of the fears of weakness, we get past first quarter earnings, see what the strong dollar has done. We get to more of Greek madness about whether the Greeks are going to be able to pay their bills, whether the Greeks are ever going to be the 7.2 billion euros that the European Union agreed to give them if they met certain conditions.
All those, I think, are going to lead the euro/dollar exchange rate to resume its decline, maybe not as fast as it had been, maybe not plunging like a stone, but I certainly don't see any reason out there to go, “Hey, let's go long the euro against the dollar because the trend has reversed.” No, I don't think it has. I think we're seeing a weak bounce and the trend will resume after that.
