Europe in turmoil: the future of the Euro

Where’s a safe place to put your hard-earned money? The question so many people are asking these days. With Trump at the helm of the dollar, Brexit looming, and Europe fracturing, under the mattress is starting to look more and more appealing. But if making your money work for you is a goal, stashing the cash at home is not the answer. Here’s a rundown of the situation as seen from a financial perspective. Put the below pieces of this international puzzle together for yourself, see what’s happening in Europe, and then you’ll be in a more informed position to know where to invest in the pursuit of the best returns.

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European destabilization

In Austria, for example, there is a big protectionist following, reflected in the success of the far-right freedom party at the last election where it gained 26% of the vote. Hungary has a right-wing protectionist prime minister, Viktor Orban, who was once quoted as warning of the threat of “a Europe with a mixed population and no sense of identity.” In most recent elections all through the EU, far-right protectionist parties have generally increased their share of the vote.

In Germany, the AfD won their first seat in parliament in the 2017 elections although they only got a relatively small 12.6% of the vote. In Sweden, the anti-immigration Swedish Democrats increased their share of the vote in the 2018 elections to 18%. In Finland, the far-right nationalists came second in the 2015 elections although their share of the vote dwindled to 6.9% in the recent presidential elections. With the voice of the Europeans gaining momentum for closing borders, the future of the European Union is not looking bright, and the Euro may well be doomed.

The union is weakening as votes for closing borders rise.

Banks over politics

It is not just in Europe that the threat of protectionism is rising. The recent presidential elections in Brazil saw the ascendancy of the far-right candidate Jair Bolsonaro; and arguably the protectionist politician par-excellence, is, of course, the US president, Donald Trump.

In relation to currency markets, the rise of the far-right poses variable threats depending on the currency. For the Pound and the Euro, for example, protectionism has been a negative influence. For the US Dollar, on the other hand, Trump’s ‘America First’ agenda has helped by reducing the trade deficit.     

The Italian budget crisis has weighed on the unified currency because of the potential repercussions of a protracted stand-off with the EU. Each negative headline has led to another decline in the value of Italian government bonds of which Italian banks own vast holdings. A further risk is the huge debt-pile of maturing cheap loans Italy’s banks will soon have to repay to the ECB. These loans, known in financial jargon as TLTROs, add up to 250bn Euros which will become due at the start of 2020. In response to this risk, several members of the ECB have raised the idea of launching a fresh programme of TLTROs so that the banks can roll-over the loans. Yet TLTROS were conceived as an emergency measure, so reviving them would be seen by markets as an admission of failure on the part of the ECB to normalise.

Trader’s options

Pro-euro forecasts are falling short, and traders are holding for a more definitive price action.

The UK is unlikely to crash out without a deal as this would constitute economic suicide, so sterling needs to recover.  In the case of Italy, the government will probably be forced to make concessions to the EU. At 130% of GDP, Italy has the second largest debt in the Eurozone and economic reality dictates this debt must be brought down. While pro-euro analists claim the downward trend will reverse, savvy traders and taking a step back with a patient eye.

Buy Euro or sell?

Politics and news releases like the ones found in the Economic Calendar can often cause a spike in prices. These movements or waves are an excellent source of profit for day traders who move in and out of trades, but not everyone trades on volatility, and Euro is in a war zone right now. Unless you’ve gone through all the Exness tutorials and know all the benefits of MT4, we don’t recommend Euro at this time.

Safehaven currencies such as the Swiss franc offer a more stable return and can generate respectable returns when ordered with good timing a direction. Whether trading the more risky pairs for higher potential profits or choosing the more conservative currencies, Exness and FX News will be there to help make your trading performance the best it can be.

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This article is a marketing communication and does not constitute investment advice or research. Its content represents the general views of our experts and does not consider individual readers’ personal circumstances, investment experience, or current financial situation. This article is not prepared in accordance with legal requirements promoting independent investment research, and Exness is not subject to any prohibition on dealing before the release of the article. Readers should consider the possibility that they may incur losses. Therefore, Exness is not liable for any losses incurred due to the use of its articles.