“After tumbling to yet another six-month low against the dollar last Friday, is the euro set for a rebound?” asks Michael Sesit in today’s Wall Street Journal.

“A growing number of analysts say yes, but they caution against expecting Europe’s common currency to soar through the roof. In fact, a more accurate prognosis might be that the downside for the euro now seems more limited, which is what J.P. Morgan and ABN Amro Bank told clients in reports on Monday.”

” ‘After the fairly sharp drop last week, this week shows more signs of stability for the euro and there are general indications that the dollar looks a little overstretched against several European currencies, including the euro,’ says Tony Norfield, global head of foreign-exchange research at ABN Amro. But he adds that ‘if the euro rises, it won’t be the start of a rallying trend, but just a bounce back, reflecting the state of [trader and investor] positioning in the market.’ “

“Late in New York, the euro stood at 86.99 U.S. cents, compared with 86.22 cents late Friday. At one point in intraday activity on Friday, the common currency traded as low as 85.61 cents, its lowest level since July 17, 2001, and 27% below where it traded when it was launched on Jan. 1, 1999.”

“A stronger euro would be a mixed blessing for Europe. On the one hand, it would enhance the appeal of euro-area stocks, bonds and other investments to both foreigners and euro-zone investors. It also could dampen inflationary pressures, which could make it easier for the European Central Bank to cut interest rates; that, in turn, would help spur growth. A stronger euro also might make it easier for politicians in Britain, Sweden and Denmark — the three European Union members that have yet to adopt the currency — to sell joining the euro to their citizens.”

“But a mightier common currency would make euro-area products less competitive on world markets at a time when many European manufacturers are reeling.”

“Citibank analysts argue that last week’s dollar surge may be a sign of an impending decline for the U.S. currency. For one thing, the bank notes that the dollar on a trade-weighted basis is near the 16-year peak that it reached last year.”