Euro: How Much More Upside?

The euro broke through the key resistance at 1.16 last week, briefly surging to 1.17, but pulled back at the start of this week. A widening economic expectation gap between Europe and the U.S., a 95% probability of an ECB rate hike, and rising concerns over dollar credit risks have combined to drive this rally. However, persistently high energy prices and emerging political risks in Germany suggest insufficient momentum to break above 1.18 in the near term.