The end of last week saw the euro/US dollar rate (EUR/USD) move out to its best levels for four months. The main driver behind this was US dollar weakness.

It is only two months since we had that interest rate rise from the US central bank, but there are already murmurings that the economy has since worsened.

Comments from the president of the New York Federal Reserve branch last week, William Dudley, cast doubt on the likelihood of any more rate hikes in the short to medium term and that saw traders getting out of positions that expected the US dollar to appreciate in value. All of this ties in with the view regularly expressed in this column over recent months.

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Tough few years

The last time we looked at EUR/USD was in 10 December issue of Shares. It has undeniably been a tough couple of years for the euro. The Greek crisis has re-emerged on a regular basis; the eurozone economic recovery shows regular signs of spluttering and more recently there have been the political difficulties around the migrants crisis.

Much of 2015 looked like EUR/USD was forming a base. The lows hit in March last year, around the 1.0450 zone were tested once again in early December when the currency pair slid back towards 1.0500. Those lows were not broken and it did end up being a springboard for where we are now - some 500 points, or five cents, higher.

Although some are expecting no more interest changes in the US this year, do not think that will give us much respite from the market's obsession with rates. Although the futures market at the moment is only pricing in a one-in-three chance of another rate hike in 2016, every jobs number and every murmuring from the Fed will be analysed to spot any clues as to the next likely move.

The best advice is to ignore the endless speculation and just let the price dictate what could happen next.

Time to buy?

There is a clear base of support now for EUR/USD ahead of those 2015 lows. Admittedly it is quite a way away from where the market is currently trading but significant weakness would look like a buying opportunity, assuming those lows remain intact.

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The initial medium term target for EUR/USD strength is still a run back to the highs from last summer in the 1.1600/1.1700 zone. If the currency pair manages to push through this level, it does start to look as if we are at the start of a much stronger recovery for the euro and can look at targets in the 1.2000s.

But let's take it one step at a time for now. The euro has had a bit of spurt recently so it would not be surprising to see a slight dip back, but traders are probably better off looking to buy into this rather than thinking it is the start of a more meaningful reversal in the fortunes of EUR/USD.

The one thing that would derail a euro recovery would be another rise in those interest rates before the summer by the US; this would in theory give the dollar a boost.

The outlook for the European economy is not overly optimistic: recovery, but at a slower rate than previously. Any ongoing bad news here is unlikely to change the direction of the euro too much.