Did euro traders make the most of 2018?

Were you one of the successful euro traders this year? We look back at the performance of the EUR in 2018 and look at where it all went wrong. 

What did 2018 hold for the euro?  

The euro started the year promisingly enough. It rose on the back of exceptionally strong data, with EURUSD hitting a yearly high at 1.2556. However, this would be the currency’s high point. Euro traders saw it spend the rest of the year in decline. The exchange rate eventually fell to a year’s low of 1.1216 in November —  a loss of 10.6%.

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Q1: Italian politics meant euro traders sold 

Q1 2018 began brightly enough for the euro, but ended on a negative note after Italy elected a eurosceptic coalition government. The new government was made up of both far-right nationalists (La Liga) and far-left populists (Movimiento 5 Star), which it stoked fears of Italy following the UK and pulling out of the EU. At the very least, it increased the likelihood of friction with Brussels.

The new government’s unorthodox fiscal policies, a combination of right- and left-wing politics, saw a combination of both tax cuts and increased welfare spending.

Q2: Sell the euro to make a profit  

Euro traders looking to make the most out of the currency in 2018 should have sold euro after its peak in February. By the second quarter of 2018, relentlessly poor economic data saw the euro fall in value to a ‘mid-year’ close of 1.1681.

June did see the euro recover somewhat. The European Central Bank (ECB) ended quantitative easing. The ECB had been using quantitative easing — printing money and introducing it into the economy — to stimulate growth in the EU. The printing of money was reduced in a staged manner throughout the year, which helped support a short-lived recovery in the euro to 1.1790.

The European Central Bank (ECB) headquarters. ECB policy saw a brief rally for the euro in mid-2018

Q3: The Italians contribute to economic uncertainty… again

By July 2018, more negative data pushed the euro back down. Analysts revised Eurozone growth forecasts as the economy of the EU bloc contracted. This hit rock bottom in October 2018 when the EU rejected the new Italian government’s budget. The economic and political upheaval sent the euro down again.

Although the Italians continued to overspend, arguing it would stimulate growth, the financial markets thought otherwise. Italian government bonds collapsed overnight. Continuing fears of contagion kept up the pressure and the euro finally fell below the key 1.1300 level.

Q4: The euro stays stable, but remains vulnerable

After this, the euro hit a plateau. The euro showed little movement and was trading in the 1.13s at the time this article was written. This lack of volatility is a change for euro traders, who have seen the currency hit some record lows this year. 

How can you make the most out of the euro in 2019?

The European markets are looking risky currently. The combination of declining growth, Brexit, political turmoil and outbreaks of violence in France all mean that investors are not predicting a euro recovery. This is compounded by reports of an Asian slowdown next year. For investors, the outlook for the euro remains uncertain as it enters 2019.