Bullish on the Euro?

Andy Lees who does Macro Derivatives Strategy at UBS says the Euro has a lot farther to run to the upside. You will recall that I mentioned his comments in May regarding the makings of a technical countertrend rally for the Euro. Now, he is making noises of a more fundamental nature, citing the weak data in the US versus the upside surprises in European data.

The attached is the overlay chart of the macro surprise differential between Europe and the States (ie the European surprise index – the US surprise index) overlaid against the euro/dollar rate. My guess is that the euro still has quite a bit further upside to the high 1.30’s (ie about 7%).

European data is still beating expectations whereas US data has been missing. Economists have been way off the mark; too bearish in Europe and too positive in the US. That is not going to last long; either the European data will slow  or economists will have to upgrade, and likewise the US won’t keep missing. The point is the data shows us that the market has followed economists and therefore is out of kilter with reality, and out of kilter by a country mile.

Other analysts disagree, if only for technical reasons. See Adam Hewison’s technical analysis update on the euro at MarketClub. He says the euro is still trading down. The euro has failed to break through resistance around 1.30; it is trading around 1.29. But the macro data flow is clearly on the euro’s side for now.