The following two charts of the euro and the dollar (weekly) show the inter-relationship that can exist between the two markets. As the dollar dropped over the last few years the euro rose. Simply put, traders now see the euro as a viable alternative to the dollar. Currently (as in the last few months), it's not so much that the dollar is rising as the euro is sinking. The reason is fundamental. Until the end of the summer, the ECB kept interest rates higher than those in the US. Trichet considered price stability a more important policy objective than monetary easing. However, at the end of the summer it became obvious that an easing was necessary. When Trichet announced his new policy direction the euro dropped. The dollar was the natural beneficiary of this policy. Remember -- there are no fundamental reasons to own dollars right now -- interest rates are low and the economy is in a recession.
On the euro chart, notice the following:
-- Prices have clearly broken the uptrend that started two years ago
-- The chart formed a double top in 2008 with the first top occurring at the beginning of the summer and the second top occurring at the end of the summer
-- Prices are below all the SMAs
-- The 10 and 20 week SMAs have moved through the 50 week SMA
-- The 50 week SMA is moving into neutral territory
-- Prices have clearly broken the downtrend they were in for several years
-- The market formed a double bottom in 2008 with the first bottom occurring in the late Spring and the second bottom occurring in mid-late summer
-- Prices are above all the SMAs
-- The 10 and 20 week SMA has moved through the 50 week SMA
-- The 50 week SMA has turned neutral
