A Macro Analysis of the Euro – Understanding Tidal Waves in Forex

Posted Monday, October 24, 2016 by
Skerdian Meta • 2 min read

There´s not much on the economic calendar today, so taking a deeper look at the big picture of one of the major currencies (in this case the Euro) makes perfect sense. In the first market update this morning, we conducted a quick analysis of some of today´s EU economic data and the second update was a recall of the time when the Euro long term trend shifted, from up to down.

In this update, we will look at how things stand for the Euro right now. This is a macro analysis of the technical but most importantly the fundamental indicators. This is the sort of analysis that guys with big pockets in investment banks and hedge funds conduct before pulling the trigger for a long term trade. They don´t care about the short term technical noise, they concentrate on massive long term trends and this sort of analysis is what gets them through to fight another day. 

So, what´s going on with the Euro fundamentals right now and what can we relate that to forex? 

Well, we know the Eurozone economy has been in doldrums since the 2008 crisis, that´s not news to us. What´s new is the recent improvement of the EU economy. The ECB QE (quantitative easing) programme which started about two years ago is finally starting to show positive effects on the European economy. 

– Last month the German and French manufacturing and the service sectors beat the expectations and this month they jumped even higher. 

– The EU service and manufacturing data as a whole is edging higher as well. Today´s numbers were the highest in the last 15 months.

– Some mysterious ECB official allegedly said that the QE programme was coming to an end. 

– Just a while ago Reuters published a poll where 11 out of 17 money market traders said that they don´t expect the ECB to ease anymore. 

– The  Markit (the firm which collects the EU economic data) manager Chris Williamson said that the new orders increased to that level that the production side couldn´t meet. This means that the business activity, hiring and prices are set to surge in the coming months.

What can we make of this?

For starters, it is apparent that the economy is going in the right direction and the recovery is expected to pick up pace. The rumours about the ECB beginning to tighten the monetary policy are popping up here and there. The market analysts are starting to believe that as well as the Reuters poll shows. On top of that, the dips in the Euro recently have been shallower. 

All these facts show that the market sentiment towards the Euro is shifting. Now all we need is Draghi coming out and telling everyone that those guys will finally end the QE programme. This is like déjà vu of what we saw in the spring of 2014 when the ECB announced the beginning of loose monetary policy.

I don´t think that right now is the right time to buy the Euro, but if we see the same figures from the Eurozone data for a few more weeks then we will seriously consider opening a long term buy forex signal. It won´t necessary be against the USD, because the FED December rate hike complicates things, but a long position on EUR/NZD or EUR/GBP feels very enticing. 

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