Fundamental Forecast for Euro:Â Bearish
- The continued languish within the European economy has become one of the world’s most vulnerable pressure points. As panic continues to increase around China, this vulnerability becomes even more exposed.
- Euro has been showing strength on risk aversion as carry trades unwind, but should an element of normalcy be restored, the short EUR/USD trade could become attractive once again, as investors anticipate the inevitable and eventual increase to European QE.
- However you’re trading the Euro over the coming months, it’s probably going to be risky. Get comfortable with your risk management in order to avoid the dreaded margin calls that traders often face in these circumstances. Our Traits of Successful Traders research can help.
The first week of the year has brought just the most recent allotment of bad data out of the Euro-zone. This week has seen disappointments in German inflation, German unemployment and Euro zone inflation figures. So, not a great week on the data front for Europe. But this isn’t really a surprise, is it? This is just more of the same that much of the world has become accustomed to. Europe is contracting. The bigger question here revolves around the ECB, and what they might actually do at their next policy meeting. Because after the disappointment that the ECB brought to markets in December, numerous questions have remained as to what they may actually do.
To bring you up to speed Europe is and has been in a really tough spot. Not just economically, but politically as well, as this economic weakness has become so profound that we’ve begun to see political ramifications get impacted. And the primary pressure point of the situation still exists: There is no banking Union. We have 18 individual fiscal policies from 18 separate and individual nation-states, all being governed and managed by one, single monetary policy.
In good times, when markets are growing, this isn’t necessarily a ‘bad’ thing. But when pressure is being felt – it becomes a really threatening component because, as you might imagine, each of these 18 member states have different drives and motives with different ideas as to how to correct the problem. This is likely why we didn’t see an increase in the QE package in December: Gaining adequate political support for such a move was likely impossible. And Europe, right now, is very much centered on politics.
