Download Dollar vs. Euro

Dollar vs. Euro
Kaitlin Briscoe
Doug Durkalski
Allison Gott
Jen Hooks
Fundamental Analysis
 Dollar
will hit a low around $1.40/€ in mid-
2005
 The
equilibrium rate is around $1.15/€
 What
will cause the dollar to appreciate?
In the U.S….
•
•
•
•
•
Capital investment will grow at 3.25% per year,
fueling economic/GDP growth
Imbalances in the U.S. current account and
households’ propensity to save/spend will have
to be corrected
Consumer inflation will fall with declining oil
prices (<$40) and recovery in the labor market
Moderate stance toward active monetary policy
may be modified if decline in dollar persists
Bottom Line: The dollar will turn around relative
to the Euro in the second half of 2005.
U.S. Deficit

Export demand unlikely to correct current account
deficit on its own…
 Central banks will have to get involved and
“support” the dollar through purchases!
 The worse it gets, the harder it is to correct…
 **Concern over extreme decline in dollar halting
worldwide economic expansion should provoke
central banks to buy (or hold) dollar positions!
In Europe…
 Economic
growth will improve in the
second half of the year due to lower oil
prices and falling $/€ exchange rate
 However, first half of 2005 will not trigger
increased demand for U.S. goods
 Rising interest rates in U.S. and stagnant
rates in Europe should improve the
imbalance in the exchange rate
Technical Analysis
Dollars per Euro Exchange Rate
1.400
Dollars per Euro
1.300
1.200
1.100
1.000
0.900
0.800
0.700
Jan99
Jul99
Jan00
Jul00
Jan01
Jul01
Jan02
Time
Jul02
Jan03
Jul03
Jan04
Jul04
Jan05
1 Year Movement
2 Week Movement
Moving Averages
Moving Averages $ per Euro
1.4000
1.2000
Dollars per Euro
1.0000
0.8000
26 Day Moving Average
9 Day Moving Average
0.6000
MACD
0.4000
0.2000
0.0000
Mar-01 Jun-01 Sep-01 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04
-0.2000
Tim e
Other technical indicators…
 Relative
Strength Indicator (around 70)
indicates a bearish outlook for the dollar
(although this indicator’s relevance rarely
lasts over a week)
 Fast Stochastic (around .8) implies that
the dollar is currently near an annual high
and should be sold