Dollar Strength Medium-Term

The euro has fallen from resistance at US$1.2600/EUR over the past month and broken through key support in the US$1.2200/EUR region, as the market focuses on growth and interest rate differentials, as well as uncertainty surrounding the German elections. US$1.1900/EUR is now key trendline support. At some point, we feel that this area will give way, heralding a prolonged period of dollar strength. In the immediate short term, should US$1.1900/EUR hold, the euro can bounce, possibly even as far as US$1.2350/EUR. However, we would envisage major resistance here. Conversely, a move through US$1.1900/EUR sets up a dollar rally to US$1.1500/EUR.

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