Editor’s Note: Profit taking by traders is the only thing slowing the dollar’s slide against the euro at the moment, says The Daily Reckoning’s Chuck Butler. He sees the euro heading back towards 1.60 in the coming days. With the market likely to have already priced in an ECB rate hike this week, it will be Governor Trichet’s comments that count most for currency traders…

Profit Taking Dominates the Day

By Chuck Butler

Well, the profit taking that I talked about yesterday morning, continued for most of the morning yesterday, causing the euro to fall from the 1.5810 level I saw when I turned on the screens, to the low 1.57 area. It had to be profit taking because why would anyone buy dollars VS euros as a long time investment, with the dynamic duo of the Jobs Jamboree and an ECB rate decision staring the dollar bulls right in the face this week…

The single unit has pushed back higher overnight to 1.5775, as I look at the currency screens… The European Central Bank (ECB) meets on Thursday this week, and although most of the markets’ participants, in the U.S., will be dreaming of barbequed ribs, and fireworks, they will stop to see the ECB raise rates. But the most important part will be ECB President Trichet’s press conference following the rate hike… It will be important for Trichet to remain hawkish or else the rate hike will be quickly swallowed up by the profit takers, which means the euro won’t get much love from the higher rates.

Trichet received an arrow for his rate hike quiver this morning as German unemployment for June, fell to a 16-year low… This tells me, and should tell you, the barber, and the guy down on the corner selling bakery pretzels that Germany is resisting the global slowdown so far… Germany is the Eurozone’s largest economy, so this report carries a lot of weight with the Trichet and the other ECB ministers. Annual growth in Germany remains above that in the U.S. and the employment picture is healthier than that of the U.S.

OK… Just in the past 30 minutes the euro has broken higher to 1.58 again… Let’s hope the NY Boys took all of their profits yesterday, and will leave this rally alone! The euro could revisit its previous high of 1.60 again, but I just can’t see it going higher than that, unless all hell breaks loose in the U.S. economy… Then… Who knows how high it can go?

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