Back in 2012, some cited the fact that the Eurozone hit a debt crisis as a reason for the recovery of the US economy. Some investors with an eye for a risk considered how they could benefit from the crisis – especially those who were less directly affected by what was happening following Greece’s bailouts and the financial difficulties felt throughout the region. Indeed, more recently, in December 2018, as the Euro fell due to troubles in France and attached uncertainty with the UK and Brexit, the dollar was able to profit.
Despite the US-China situation that threatened to increase tariffs to major imports and exports to the east, the dollar seemed healthy compared to its European neighbors. with both the euro and pound sterling suffering. The Eurozone debt crisis saw some reprieve earlier in 2018 as Greece finally exited the bailout program but trouble brewing in Italy threatened the security of the euro. The ECB (European Central Bank) slashed its growth forecasts, which caused the euro to stall. The euro fell 0.3% against the dollar, which represented a shift that is not uncommon. While the financial outlook might look grim across the board, the dollar seems to be faring better, despite threats from outside, while the rest of the Eurozone and Britain seem to be fending off internal issues.
Indeed, the EUR/USD connection has always been important for financial forecasting. The trading pair represents the two most influential economies in the world, so it’s a good barometer of how well the economy should be performing. It represents the world’s most liquid currency pair and, as such arbitrage is not possible. Yet, traders across the world – as many multinational corporations have offices in Europe and America – are constantly involved in trading the forex pair. Despite the government shutdown of 2018/9, the dollar has seen a rise. This also comes at a time when consumer optimism is reportedly at a low. Financial analysts in Europe are concerned about the contraction of Germany at the end of 2018, which could spell a major turndown. Some even say that a German recession is likely.
Some suggest that 2020 will spell another recession, with some markets not even fully back on their feet after the last major recession. Indeed, this would bring turmoil to the markets. But, as things stand now, economists are optimistic. Europe moves forward on their recovery path, China is pursuing loose fiscal policies, while the USA is running large debts. The future of the markets will be dependent on the interaction. One economic collapse could trigger a worldwide recession if economists aren’t careful.
Financial forecasts are exactly that – forecasts. While they are informed by information and what happened before and what could happen in the future, they still remain a possibility. So, while investors and traders should be mindful of what may happen, they should also not cease activity due to concern as to what the markets may be doing. As the US has shown, despite all factors showing there should be a decline, the dollar stands strong.