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Where the Euro Is Really Hot

Kemter | E+ | Getty Images

If you have been marveling at the euro's recent rise against the dollar, you've got plenty of company.

But if you've missed the euro's rally against several other major currencies, that's where the action really is.

"Even as EURUSD struggles with resistance several crosses continue to show upside pressure," said Camilla Sutton, chief currency strategist at Scotiabank. She pointed to the euro's rise against the Swiss franc to a one-year high, its break to a 1 1/2 year high against the yen, and its impressive strength relative to the British pound and the Canadian dollar.

Part of the reason is that the dollar is responding less than other currencies to events outside U.S. borders. China's fourth quarter GDP topped forecasts but was still below past levels, and the Aussie sagged in response. British retail sales disappointed, denting the pound but not affecting the dollar. And the yen is weaker on expectations of aggressive easing from the Bank of Japan.

Other factors may be at work for the Swiss franc. Steven Englander, global head of G10 FX strategy at Citigroup, reported from client visits in Europe that "there was a sense that hedge funds may have the trade, but that also that it did not extend much outside the HF community." Also, he said, "the question 'why now''' is a hot topic.

Englander said the clients he saw were generally turning more positive on the euro—but Scotiabank's Sutton is not. She anticipates renewed selling pressure on the common currency later this year, and she sees it finishing 2013 at 1.2700 against the dollar.

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