As could probably expected given the tumultuous nature of international politics and, perhaps more importantly, the global economy, the fx markets have experienced quite a shakeup over this past month. Although many of us would probably enjoy seeing some degree of stabilisation in the near future, the unfortunate truth remains that many ongoing issues are slowly reaching their apex in coming months (think Brexit, for starters). But, before we continue on what may happen in the future, let’s take a moment to discuss recent shifts in Euro to Dollar conversion, as these actions provide us with a decent context to predict future swings.
Experts consider a recent dip in the noted University of Michigan confidence index to have sparked a brief rally in an otherwise gloomy Euro Dollar slide. While the USD has fallen slightly, the Euro has been given an opportunity to gather the forces needed to initiate a much needed rally. Unfortunately, a host of dismal economic data being recently reported out of the Eurozone has made it somewhat difficult for the Euro to gain traction. According to recent reports, a surprisingly painful contraction in the EU’s trade surplus earlier this year (weighing it at just about 2.6 billion Euros) has proven to be a serious impediment for the Euro Dollar. Combined with the fact that inflation is occurring at a much faster rate than previously thought, the EUR has little positive news to pin a rally on.
In fact, even a spate of negative news out of the US is not providing a true foundation for upward momentum within the EUR. Consumer price date in the United States is at a depressingly low level, which would, historically, provided a valuable ‘bump’ for the EUR – this time around, however, no surge occurred. Likewise, statements from the Fed regarding squeamish monetary policy have almost always paved the way for EUR gains…except now. Suffice to say, it seems larger issues may be on hand if the Euro Dollar cannot find a boost in these historically rich offerings out of the United States. That being said, it is also important to note that international news outside of the US / EU domestic economy can also affect currency prices, and this scenario is no exception to the rule. China has recently announced a higher than expected growth percentages and a substantial boost of exports, news which was received warmly in the US and helped yet again strengthen the USD against the EUR.
What with all of the tumult in the EU regarding a potential Brexit, it is, perhaps, more easy to understand why traditional indicators are not yielding traditional results. The implications of such an observation are, however, troubling in their own right. With a break from history and, thus, historical trends, comes a journey into proverbially ‘uncharted waters’. There is little that analysis can offer when proven indicators do not yield proven results. Of course, this situation could change at a minute’s notice, or perhaps when the US releases their next round of economic reports. Until then, however, it will be quite interesting to observe how the Euro dollar withstands a seemingly unending stream of bad news spilling out of the European press. Sentiment, of course, plays a huge role in both traditional stock exchanges and the fx markets alike. With that in mind, it seems quite reasonable to assume that low morale could easily attribute to low value. Experts advise investors to watch closely for tests of support in the 1.230/20 region, as a break here may signal larger losses in the near future.