Some analysis believe the euro may fall
Some analysis believe the euro may fall below $1.40 after recent gains made it close to 20 % overvalued in terms of purchasing power. It seems the Euro has deviated considerably from purchasing power parity which is basically a relationship of the costs of goods relative to other countries in the past 10 years.
The euro reached $1.4520 on April 12, the highest since Jan. 14 last year and widening the difference from purchasing power to about 18 %. It has yet to break that level and trades to the high 1.4515's and then falls quickly again down the the 1.4460~80's
Federal Reserve Chairman Ben S. Bernanke said on April 4 he expects increases in commodity prices will create a boost in US inflation and that the central bank would act if he’s proven incorrect. The Fed has kept its key rate near zero since December 2008, and in November announced a $600 billion bond-purchase plan through June to support growth.
The U.S. is rapidly approaching an exit from quantitative easing and the euro may drop below the $1.40 level and probably further as once there are signals the US will start to raise rates considerable positions in carry trades for instance will occur.
