Euro Turns Bullish As Economic Growth Gains Ground
The Euro has been on a rough patch for the past couple of weeks, but it looks like things are turning over a new leaf as economic growth starts to improve.
The currency has shown strong performance over the past few days as traders changed their sentiments towards a softer stance. This week kicked off with renewed hope for the Euro with the least negative stance against the currency for the past 11 months. The performance was mainly attributed to the recovering European economy and also to the positive outlook courtesy of strong Chinese data.
Morgan Stanley and UBS Group AG analysts project that Chinese trade will fuel the Euro’s growth by over 4% over the next few months. Poor economic growth in Europe coupled with Brexit talks among other issues have played a role in the Euro's poor performance, especially against the US Dollar. There were also other affecting issues such as the European Central Bank’s (ECB) soft approach on the market and concerns about a potential German recession.
"Range trading can mask an underlying build-up of pressures that get released eventually," stated Themos Fiotakis, the executive in charge of rate strategy and currency at UBS.
Is the bull run strong enough?
Euro also demonstrated the ability to withstand some pressures in the market. For example, the currency held its own at the 1.323 level when the EU revealed that US imports valued at €20 billion would be at risk of Tariffs as per the US president Donald Trump's tariff threats. This suggests that the Euro has been growing stronger despite the shaky situation in the market due to issues such as trade protectionism and Brexit.
What is the next step for the Euro?
The European Central Bank believes that industrial production, retail sales and recovering economic data in the European region contributed to the Euro’s bullish turn. Hans Redeker believes that the currency will continue on its current bullish path thanks to global growth which will strengthen the Euro against the US dollar.
Things might also go the opposite direction at this point especially if the one-year risk reversals encourage traders to bet against the Euro at around 20 basis points. The currency will also have to close at a level higher than $1.1315 so that it outperforms the 55-daily moving average. Such a move would encourage traders to set their May target at $1.1448. Current sentiments remain bullish, and Nordea Bank Abp believes that the price will reach the $1.1650 level in the next three months.