Everybody hates the euro. Sorta.

@lamonicabuzzMay 8, 2012: 12:50 PM ET
Despite renewed fears about the economies of Europe, the euro is still up against the dollar in 2012. And it remains well above its lows from 2010.

Despite renewed fears about the economies of Europe, the euro is still up against the dollar in 2012. And it remains well above its lows from 2010. Click chart for more data.

NEW YORK (CNNMoney) -- If investors hate Europe so much, why isn't the euro currency tanking?

The euro, invariably described as being troubled, battered, beleaguered, struggling and with many other adjectives of that ilk, is still up slightly versus the dollar this year. That's right. Up against the greenback.


Yes, the euro has slid from its highs of the year in recent weeks. It even slipped below the key $1.30 level (to about $1.298) Tuesday morning. That's its lowest level since January.

But the euro has held up much better than you'd expect, given all the negative headlines about Spain's economy and the outcomes of the French and Greek elections.

To put the $1.30ish level into context, the euro's low point against the dollar during the now more than two-years' long sovereign debt crisis was just below $1.20 back in June 2010.

So the euro has a lot more room to fall before real pain is being priced in and people start talking about an inevitable move to parity with the dollar.

The euro's resilience reminds me of what Apu, the Kwik-E-Mart owner on "The Simpsons," said in an early episode after Homer quit his job at the store. (What can I say? David Einhorn's Simpsons-heavy rant against the Fed on The Huffington Post last week inspired me.)

"He slept, he stole, he was rude to the customers. Still, there goes the best damned employee a convenience store ever had."

The euro's "strength" is all relative. It may just be the cream of a sorry crop of currencies.

Despite the new worries about Greece and the fate of austerity in general following Francois Hollande's victory over Nicolas Sarkozy in France, the euro still isn't in significantly worse shape than other liquid currencies of developed markets.

Many currency experts are quick to point out that the value of a currency is mainly a function of what central banks behind those currencies are doing. Typically, the lower the interest rate, the weaker the currency.

The European Central Bank kept rates at 1% last week, and while that may seem low, it makes Europe the least accommodative of all the major developed nations.

Rates in Britain are 0.5%. And in the U.S., overnight lending rates have been near zero since the end of 2008.

The Federal Reserve has also been buying Treasuries to keep longer-term yields pretty low. There are growing calls for the Fed to launch a third round of bond purchases, a policy of so-called quantitative easing, or QE3, in the coming months. That could weaken the dollar further.

"There are a lot of negatives with the U.S. dollar. I think this recent soft patch with the job market and economy in the U.S. means there could be a 50% chance of QE3 before Labor Day," said Michael Woolfolk, senior currency strategist with Bank of New York Mellon in New York.

Another reason the euro isn't imploding? Voters in Europe didn't exactly shock the markets. Is anyone really surprised that austerity is an unpopular political platform and that the electorate would rise up to reject it?

It appears that a Hollande victory was priced into the euro and that investors are now waiting to see if his tough anti-austerity campaign talk will actually turn into a meaningful policy shift.

"There hasn't been a protracted and sustained sell-off in the euro because nothing materially has changed. It's just ongoing uncertainty in Europe," said Woolfolk.

It's also important to remember that many of the big investors in currencies are countries themselves.

Andrew Busch, global currency and public policy strategist with BMO Capital Markets In Chicago, notes that Switzerland and Japan have been actively buying euros in order to rein in the strength of their franc and yen respectively.

He said emerging markets like China, Russia and Brazil have also been adding euros to their reserves simply as a way to diversify their holdings beyond U.S. dollars.

"These factors can hold a currency's value in place longer than you might think is possible based on the fundamentals," Busch said.

But ironically enough, a weaker euro is exactly what Europe might need. Busch said the ECB should cut rates to near zero (like the Fed) over the next few months as a way to try and simulate growth in the eurozone.

While that would weaken the euro (and presumably anger inflation hawks on the ECB) it could make the price of goods made by European companies more competitive overseas.

"I'd suspect most European leaders would want a lower euro. You can export more and try to grow your way out of recession. A lower euro is something the ECB should advocate," Busch said.

Along those lines, the euro did tumble late last year after new ECB president Mario Draghi took over and cut rates twice, basically undoing the rate hikes by his predecessor Jean-Claude Trichet earlier in 2011.

But Draghi has only made subtle hints that further cuts are on the way. Holding steady at 1% could be problematic.

Unless the ECB lowers rates soon and pushes the euro down even further from here, European leaders may not act as if the current crisis is really something they must treat as, to quote Foreigner, "Urgent. Urgent. Emergency. Urgent urgent urgent urgent!"

Woolfolk said that the euro could fall as low as $1.26 in the coming months but he said it probably won't drop below that. On the high end, it could move back toward $1.34. He said there is simply not enough hate for the euro for investors to short only it and go long on virtually every other currency.

"It will take more sustained pessimism for a weaker euro," Woolfolk said. "It's like pushing a beach ball below the surface of the ocean. It's difficult to keep it under water for a long period of time unless everyone is pushing against it."

In fact, the increased chatter of Greece possibly throwing in the towel on the euro and potentially going back to the drachma might even be viewed as another positive for the euro.

"There are some concerns that the entire euro could blow up and Europe would have to start over. But if only Greece and some other weaker members leave, that could strengthen the euro," Busch said.

Add that up and it seems likely that while the euro could weaken further, it won't completely crumble. Even though it's hard to find reasons to like Europe, many investors aren't ready to dump the euro en masse just yet.

"Europe is at least talking about addressing the problems. So there is still a wait and see attitude," said Anthony Welch, co-manager of The Currency Strategies Fund (FOREX), a mutual fund specializing in foreign exchange investments in Sarasota, Fla.

"I'd be nervous having a big short position in the euro. It's not that the euro is a great value but it's tough to bet against it." Welch added.

Best of StockTwits: It may be time to bail on watch maker Fossil (FOSL) and traders shrug off a slightly disappointing sales report from McDonald's (MCD, Fortune 500).

firstadopter: $FOSL is a wake-up call for any retail company with Europe exposure. Sentiment breaker.

I talked more about Fossil's sales miss and resulting 40% stock plunge in today's Buzz video. Any company with ties to European consumers could be in trouble.

But this stock also had a lot of momentum, much like Green Mountain Coffee Roasters (GMCR) last year. And that made short sellers wary. In fact, the Active Bear (HDGE) exchange-traded fund, which I mentioned in last week's column about Green Mountain, was also shorting Fossil. That turned out to be another good call. That ETF is up 3.3% today while the broader market sank.

ivanhoff: The watch business is in a secular bear market. How many people below 40 wear watches?$FOSL

Interesting demographic argument. I am close to, but not yet, 40. I still wear a watch. It's habit. I'm also neurotic about punctuality (poor Mrs. Buzz) and get highly anxious on those rare days I forget to wear a watch. It's probably why I chose a profession where beating the clock and meeting deadlines are fun little games.

But I can see how watches are less useful for the "kiddies." If your phone can tell you the time, why wear something on your wrist? Unless it's a Pebble. Still, aren't watches more about fashion than utility? Or am I just that much of a geezer?

Investopia: Not concerned about $MCD. Same store sales is a choppy number. One month doesn't make a trend.

retail_guru: Expecns high but its hard to ignore that McDonald's is now sporting a 3% yield & at 5% adjusted comps is gaining share hand-over-fist $MCD

Agree 100%. McDonald's has held up well throughout the economic slumps in U.S. and Europe. Sales are still growing at a nice clip, even though they were a bit below forecasts. And with a dividend yield of near 3%, that's the kind of stock you have to love in a macro environment that's still murky at best.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks. To top of page

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