Money in Motion

Where the Euro Goes From Here

Euro coin in front of the giant symbol of the Euro outside the headquarters of the European Central Bank.
Thomas Lohnes | AFP | Getty Images

The euro's had quite a run in the last several days. But this strategist doesn't see a much more near-term upside.

What a week for the euro,   huh? Just days ago it was getting trashed as investors fretted about the sovereign debt crisis, but now every whiff of potentially good news gives it a lift.

David Woo, currency strategist at Bank of America Merrill Lynch , thinks he knows why.

"Everybody was short the euro. There's no doubt that in the last month, any hedge fund that has been struggling to make money all year has been piling into the short euro trade," he told CNBC. In fact, his group's indicators showed that the short euro trade may have been more overbought than at any time in the last ten years. So "unless the world was going to fall apart altogether, there was a good chance the dollar was going to retrace its position and get squared up a bit," he says.

Euro & Dollar Investment Strategy

And what's next?

Probably not a whole lot more upside near term, Woo says.

"We could see 1.40" against the dollar in the next week or two, he says, but at that level the selling could recommence.

On the other hand, oil - yes, oil - is keeping a nice floor under the single currency. Woo says that when you look at correlations, "The euro trades on oil more than anything else." And when oil prices are high, oil-exporting countries raking in dollars have to sell them for euros to keep their assets balanced. As a result, "As long as China keeps going and commodity prices remain on the rise, it's going to be very difficult for the euro to go much lower."

You can watch the whole discussion on the videotape.

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