The recession in the EU seems to be still underway. At the same time, the Fed starts tapering its quantitative easing program for the first time in several years. Markets grow more volatile and seem less predictable than they used to be.
In this aspect, more and more traders are getting increasingly interested in the near-term future of the world’s 2 major currencies – the US Dollar and the common European currency (also known as the Euro).
Well, when currency predictions are concerned, Market Leader always relies on the trading experts working for Masterforex-V Academy, Europe’s Best Forex Training Project since 2009.
EURUSD: Long-Term Prospects Through Traders’ Eyes.
In order to make a decent prediction, let’s start the analysis from considering some macroeconomic figures (both actual and projected):
The USA:
GDP. The US economy is showing confident growth. The GDP revisions for Q3 2013 do surprise with its 4.1%. At the same time, the Fed’s predictions for 2014 and 2015 are also improved.
At the same time, the European economy finished 2013 in the negative zone. Still, the figures shown over the last 2 quarters have positive dynamics. This gives politicians some hope that the economy will start recovering. The EU’s GDP is expected to grow by +1.1% this year.
Inflation.
We can see that the Fed has downgraded its inflation forecast. This is a benefit on the one hand since it gives way to further monetary easing. On the other hand, extremely low inflation rates may hinder economic growth. Meanwhile, the rate of inflation in the EU is unstable. The latest predictions for 2014 are 1.5% while the latest figures indicate 0.8% in 2013. This indicates some dangers connected with deflation processes. However, the local financial authorities assure that the risk of deflation is minimal at this point. Still, such a situation in the European financial sector increases the likelihood of further quantitative easing in Europe.
Unemployment.
As far as the rate of unemployment is concerned, it is definitely higher in the EU than in the USA, which means the situation in the US labor market is better. The US rate of unemployment tends to be declining every year. Still, the EU rate of unemployment remains stable and high.
Trade Balance.
The eurozone:
Any surplus favors the local currency and the economy in general, thereby attracting more foreing investors. To tell you the truth, export is one of the strengths of the European economy. Still, the surplus is mainly achieved thanks to Germany, the eurozone’s economic locomotive. The tendency is positive.
The USA:
Traditionally, the USA has a trade deficit, being the world’s biggest consumer. That is why it is the dynamics that we should pay attention to. If to compare the latest figures to the preceding ones, we will see that the tendency is positive since the deficit decreases. Still, the export stays almost the same, which means that foreign consumers do not provide the US economy with extra support.
Major Trade Factors:
The USA:
Europe:
Let’s consider the GDP forecasts for 2014 given by one of the world’s leading banks. If to take it for granted, we may assume that the US economy has bigger potential than the affiliating economies of the EU. Still, they are also expected to be subject to positive economic tendencies this year.
Balance of Payments
The USA
There are several conclusions based on the stats above:
First of all, we can clearly see that the deficit keeps declining. The surplus in terms of products and services is improving.
The EU:
The EU’s balance of payments is positive and has a positive tendency. This provides the Euro and the EU economy with extra support.
Economic Activity
The USA:
Manufacturing PMI:
Non-Manufacturing PMI:
Europe:
Manufacturing PMI:
Non-Manufacturing PMI:
Figures above 50 indicate growth. The US figures have been well above the 50 level for a long time while the EU’s ones have just crossed the border line to see some growth.
Monetary Policies
The US interest rates have been at the record-low levels around 0.25% for a long time and the Fed promises to keep it for years while inflation is within 2% and the rate of unemployment is above 6.5%. Still, the Fed starts tapering QE3. In particular, this month the Fed promises to cut the bond purchases from $85bn down to $75bn. If the labor stats are positive, they will contribute to further tapering.
The EU rates have recently been cut to 0.25% as well. Europe is subject to many risks, including high unemployment and low inflation with a risk of deflation.
Debt Market
German 10-Year Bonds:
French 10-Year Bonds:
Italian 10-Year Bonds:
US 10-Year Bonds:
We can see here that US bond yields are growing fast than the yields offered by their European counterparts. They reflect monetary policies conducted by local financial authorities. At the same time, they indicate that the US economy is growing at a faster pace.
The Bottom Line
What can we conclude after analysing the offered information. The US economy looks stronger than the European one. Europe is more likely to keep or even boost its QE program while the Fed is tapering it QE3.
Masterforex-V Academy, says that the long-term trend will be neutral with deviations in both directions. At this point, there are no reasons to expect a EURUSD rally above 1.39/1.4 The only thing that may cause such a market reaction is a major difficulty in compromising over the US debt. The debt talks are scheduled for early February 2014. If the talks results in an easy agreement, this may provoke a decline down to 1.3.
Investors are recommended to buy dollars when the price hits the upper border of the EURUSD price range. The strategy has been reliable over the last 4 years and is likely to keep working since there are no major reasons to break the tendency.
If you are seriously considering a career in trading Forex, you are free to visit the FREE school for traders and investors under Masterforex-V Academy. Good luck!
