How Much Higher Can the Euro Go?

The Federal Reserve headquarters in Washington, DC.

New bond-buying from the Federal Reserve could push the dollar lower against the euro, but one strategist recommends caution.

Ready for Fed Chairman Ben Bernanke's pronouncements? UBS's Shahab Jalinoos certainly is.

Jalinoos, a currency strategist at the Swiss bank, says his bank's economists expect the Fed to introduce a third round of quantitative easing, and commit to buying some $500 billion in assets.

In the currency markets, he adds, "typically the dollar [.DXY  79.61  UPWARD  -0.12 (-0.16%)  ] tends to have fairly violent knee-jerk reactions to these kind of outcomes."

At the same time, the euro [EUR=X  1.2918   DOWNWARD 0.0019  (+0.15%) ]  has been moving higher, most recently in the wake of the German constitutional court's blessing the bailout plan.  

  

"The euro appears to have fairly large corrective rallies within its very big-picture down trend," he explains. "We've seen two of those in the past year" as markets awaited resolution to the latest chapter in the Greek debt crisis, and the European Central 

The problem, he says, is that "these rallies tend to fade out event when the market runs out of good news to trade off and tomorrow may be the culmination of the good news that the euro's had."

Jalinoos recommends selling the euro against the dollar, entering the trade at 1.3000 and setting a stop at 1.3120, with a target of 1.2500.

---------------

MULTI CURRENCIES v The Dollar

TRACKING CURRENCIES

EUR=X

1.2918

0.0019

+0.15%

GBP=X

1.6111

0.0005

+0.03%

JPY=X

77.74

-0.07

-0.09%

CHF=X

0.936

-0.0011

-0.12%

AUD=X

1.0476

0.0011

+0.11%