EUR to USD Exchange Rate to Drop on Back of Political Uncertainty
Make no mistake, the EUR to USD exchange rate could plummet. All the stars are lining up perfectly for the euro dropping below parity against the U.S. dollar (USD).
Remember, when it comes to the currency markets, think long-term. Don’t get bogged down by what happens on a daily basis; it could be misleading.
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When we do just that, it doesn’t look like the EUR to USD exchange rate has a bright future.
Understand that in the eurozone, there’s a movement in the making that wants out from the euro, just like how Britain is planning to exit the European Union (EU).
Mind you, the movement is not very prominent yet, but it’s gaining significant strength quickly. One of the best examples of this is France, the second-biggest nation in the eurozone.
A party known for its right-wing populist views, the National Front (Front National in French), is showing up in polls as a contender to rule the country. Here’s the thing: the leader of this far-right party has made it very clear that she doesn’t like the euro, wants France out of the eurozone, and wants to reintroduce the franc as France’s currency. (Source: “‘The euro is KILLING US’ Marine Le Pen vows to pull France OUT of the eurozone,” Express, January 25, 2017.)
Imagine if France’s National Front gains even more strength. It doesn’t even have to win. With France being one of the biggest economic hubs in the eurozone, this factor alone could impact investors’ confidence in the euro, and could result in a much lower EUR to USD exchange rate.
But this isn’t all.
For a stronger currency, you need solid economic growth as well. Right now, the eurozone is showing mediocre performance at the very best. The U.S. economy is in far better shape. As this continues, it’s only going to make the EUR to USD exchange rate drop.
Technical Analysis Screaming Lower Euro
Looking from a technical analysis point of view, the euro has dropped significantly against the U.S. dollar, and could drop further. Please see the long-term chart of the EUR to USD exchange rate below.
Chart courtesy of StockCharts.com
The EUR to USD has been in a downward channel. With this, remember the most basic rule of technical analysis: never fight the trend.
What’s also interesting to note is that if you look at momentum indicators like the moving average convergence/divergence (MACD), or strength indicators like the Relative Strength Index (RSI), they are screaming that the price action is in favor of the bears, and that the exchange rate could drop much further.
EUR to USD Exchange Rate Outlook for 2017: Below Parity Possible Soon
Keeping all this in mind, the odds of the EUR to USD falling well below parity are much higher than they were during the European debt crisis.
What could change the outlook on the EUR to USD exchange rate? The outlook could change if the currency pair trades above 1.30 (the resistance level on the downtrend that began in 2008), France’s National Front loses its popularity, the U.S. economy starts to tumble as the new administration brings in new laws, and the European Central Bank (ECB) suddenly ditches printing money and starts to raise its benchmark interest rates.
