Are the markets turning their backs on the Euro?


As many of our readers trade forex or binary options currency pairs and since the Euro is one of the most popular currencies being traded, below is an overview of the current situation and prospects for the trading of the European currency.

The inability of the European economy to achieve the long awaited recovery is leading expert analysts to conclude that the decline of the Euro exchange rate against the dollar will continue and indeed that this trend will last for several years.

According to sources from Goldman Sachs the exchange rate between the dollar and the euro, which is currently around 1,31 USD per 1 EUR, will hover around 1:1 towards the end of 2017. As quoted by the German financial newspaper Handelsblatt the yearly projection is that the rate will be at 1,20 USD according to Goldman Sachs, compared to 1,26 USD which is the prediction by the experts at JP Morgan.

The experts at Deutsche Bank appear to agree with the expectations for a lasting trend in the decline of the euro to dollar exchange rate, pointing out that the times when investors chose to buy in bulk government bonds from Eurozone countries due to their high yields, is now well a thing of the past. In the meantime, it should be pointed out that currently the US government bonds are more attractive for investors than let’s say the Spanish bonds, due to their higher return on investment.

The Handelsblatt newspaper also reminds that during the past four months the common European currency has lost in value by 5,3% against the US dollar, by 3,7 against the sterling pound and by 3,5% against the Japanese yen. This weakness shown by the Euro is explained largely by the negative development prospects of the European economy. While the newspaper also highlights the facts that while most EU countries are faced with a deep recession, the American economy appears to be increasingly stronger. However, the fall in the value of the Euro actually increases the competitiveness of the European products.

This a view also shared by the ECB head Mario Draghi, who has lately often referred to the dire need for a greater relaxation in the measures against the economic recession. Such a development will weaken the Euro even further, however this is something favoured by the ECB because a decline in the interest rate would boost further the competiveness of EU-manufactured products rendering them cheaper for markets outside the Eurozone.

According to sources from the German wholesalers association the currency exchange rates play a crucial role especially for medium size enterprises. The actual exchange rate as well as its fluctuations are of paramount importance because in Asia, the Near East, South America and Africa commercial transactions are executed mostly in USD or in currencies that are directly linked to the American currency.

At the same time it is also important to consider that an increase in the price of important goods, as a result of a weaker Euro, would also increase the inflation rate in the Eurozone, which is already at an ominous 0,3%.