During the week the dollar has gained ground to record levels against the Euro. After approval by Congress of U.S. rescue plan by the government of the United States amounting to 700 billion dollars.
The dollar has advanced 5.7% during the week to close at 1.3772, the biggest gain in a week since the advent of the Euro in 1999, setting a record.
Fundamental Analysis
markets set a price based on supply and demand. And both the supply and demand have a number of factors such as expectations, differences in interest rates, etc. In this case, the price of the dollar has strengthened against the Euro because of demand for funds either to fill positions or to cover a "bailout."
U.S. economic indicators have been worse than expected, the level of employment based on the "Non-Farm Payroll" fell to 159,000 jobs, while the market expected a reduction in 100,000. This indicates that the recession is far from gone, and our perception of the "worst" and happened was wrong. All this should give a strong pressure on the dollar in its devaluation, but the opposite is happening with your assessment.
think the market is demanding a lot of dollars against the Euro (note that the Yen has appreciated) because institutions have to cover the bailout. And once this demand has been satisfied the Euro should have a strong rebound upward, assuming it meets the bad indicators.
Technical Analysis
In technical analysis is taking a very interesting situation: the price of Euro faces a line downward acceleration with a high slope, our technical indicators are in the overbought zone. Everything seems to be that the Euro is ready to rebound. As shown in the figure below.
If the price of Euro breaks through the line acceleration is expected a rebound in mind that surely should lead price on 1.4000. If he fails should maintain its free fall.
In conclusion, we think the price of the dollar is rising against the euro due to large institutions have to cover their positions due to the government's emergency plan in the United States and technical analysis we face a strong possibility that Euro rebound and the market adjust.
We maintain our view that the dollar is in a bullish trend against the Euro.
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