The euro/US dollar exchange rate (EUR/USD) is the most popular currency pair amongst traders in terms of volume and tends to be used as a benchmark for how strong the US dollar is at any given moment. The past 18 months had been good for the US dollar as it was seen as something of a safe haven currency. The euro had plenty of uncertainty surrounding it due to the woes of Greece and broader economic troubles.

Against this backdrop EUR/USD dropped from highs of around 1.40 in May 2014 to below 1.05 in March this year. These March levels represented 12 year lows for the euro - hardly a ringing endorsement of the great single currency experiment. But there continue to be signs of a shift in sentiment, suggesting the path of least resistance now for EUR/USD is upwards.

(Click on chart to enlarge)

Let’s look at any potential pitfalls for the euro first of all, before we get too carried away with the bullish case. We may all be a little relieved - as I am sure its citizens are - that Greece’s finances have not been making daily headlines for some time. But it is not really a problem that has gone away and there are some who have the view that a future default by Greece on its debt is a case of when rather than if. Such an event would help to undermine confidence and would likely put the euro under renewed pressure.

If Greece defaults, there are a number of actions that the European Central Bank could be forced to take to try and underpin the wider eurozone economies. The most obvious would be more quantitative easing - effectively the money printing which we have got so used to over recent years. This would weigh on the euro’s value in the foreign exchange markets and most likely push EUR/USD lower.

But for now this is all trying to second guess quite a few unknowns. The European economy is still in recovery mode. This recovery may be losing a little steam but that's true for plenty of other world economies.

There is arguably a more immediately bearish case for the US dollar - which would result in a rise in EUR/USD. As mentioned, the dollar has been seen as something of a safe destination over the last couple of years but this appeal looks to have waned a little in recent months. During the summer’s China crisis, there was definitely some dollar strength but it was pretty short-lived.

(Click on chart to enlarge)

And then there is the perpetual question of a US interest rate rise. Everyone seems to accept that rates in the US are going to go up; they just can’t decide on when. Last week’s US jobs data (2 Oct) was disappointing and once more this meant that many forecasts for when a rise would actually happen got pushed back yet again. The delaying of a rate rise is another reason why markets may prefer other destinations to the US dollar.

The technical moves on the charts have been a little subdued in recent weeks but the gradual uptrend recovery from those March lows is still in place. In the short to medium term it does look as if more EUR/USD strength is on the cards, with a run back to the summer highs of 1.1700 looking a possibility before the year is out.