The G20 summit took place in Bali, Indonesia, on November 2022…
EUR: the eye of the storm
Information is not investment advice
“Any two points can make a straight line” – that’s a fair reply to the picture below if I intend to convince you that the mid-term outlook for the Euro is duller than anything else. Let’s see the strategic horizon then.
It looks like the downtrend rarely has been alternated by an upward trajectory with the EUR/USD. The breaking point is the crisis of 2008 after which the EUR could never stand up against the USD and hold its ground for more than a year or so. The last episode of a downward movement which starts in the middle of 2018 is so smooth and consistent as if it was “supposed” to be there. In this context, the vulnerability of the EUR against the US dollar due to the virus changes little in the grand scheme.
In fact, the crisis Europe is going through now may expose and propel those internal mechanisms that are driving the EUR down. Those mechanisms may be the same that question the economic integrity of the European Union itself, and hence, EUR as well. It’s yet time to open Oswald Spengler’s “The Decline of the West”, though. What’s happening right now in Europe?
Lower than expected
The latest data input from the European economic indicators was the Euro Area Manufacturing PMI. The released 33.6 mark was significantly lower than the expected 39.2, even with the factored in virus drawdown. That means that the situation in Europe may be worse than it may be conceived. In fact, the more news comes to the stage, the more it seems so. No surprise that the European stocks are shaken and the EUR gets weaker.
Is there a way out?
In theory, of course, there is. But realistically, it is very hard to achieve a sustainable exit from the recession for the EU as such. There are too many disparities and economic differences between the countries, applied to the virus response specifically, and in general, that has been the case even before the virus. The infections numbers are still rising in some of the countries, while in others they never have threatened the state as much as they did from the very beginning for others. Virus lockdowns are big damage to businesses, and lifting these lockdowns will be another problem when the time comes. And the list goes on, so it is easier to name what is not an obstacle for the EU to get over the crisis and have the EUR get in the zone of confidence. Let’s not be pessimistic about the EUR though. The battle goes on.
The deafening news shocked the whole world yesterday: the British Queen Elizabeth II died peacefully at the age of 96…
After months of pressure from the White House, Saudi Arabia relented and agreed with other OPEC+ members to increase production.
The first FOMC meeting comes after a buildup of anticipation from traders and investors alike, as the markets await what posture the Fed will take regarding the interest rates; would there be a hike or a cut in interest rates? Recall that the Federal Open Market Committee had previously ended the year 2022 with a 50bps hike, and an indication from Powell, the committee chairman, that the Fed could consider raising interest rates by 75bps in the course of the year 2023.
Western countries are trying to find other options for oil and gas supplies after a 10th package of sanctions, which will put more pressure on Russian oil and decrease global oil supply. Italy, for example, is in talks with Libya.
Last year was tough for the Japanese yen. USDJPY gained more than 30% over 2022, striking above 150 in October. While anticipation of slower Fed rate hikes pulled the pair below the 130 level at the start of 2023, the speculations over the destiny of BOJ’s yield control policy grabbed the attention of the Japanese assets in the middle of January. What lies ahead for traders of the Japanese yen?