Throughout the past month, the euro has had an incredibly strong run against the USD. With improving economic conditions in Europe, it only makes sense. However, some argue that the currency could climb further in the near future, while others argue that the USD is going to pull ahead. Today, we’ll talk about the arguments on both sides and what traders should be watching when trading the EUR/USD ahead.
Why some believe the EUR will take the lead
As we know, a currency can only be as strong as the economy it represents. As a result, the reason some believe that the EUR will find its way up against the USD has everything to do with economic growth in the 19-country block known as the eurozone.
In fact, those who say that the EUR will take the lead point to the fact that the EU recently increased its economic growth forecast, stating that growth in the year 2017 will come in at 1.7% this year and 1.8% in the year 2018. While this left the 2018 forecast unchanged, it did increase the 2017 forecast from 1.6%.
Another positive bit of news for the EUR is that the EU is expecting that eurozone unemployment will find its way down. In fact, Europe said that it is expecting for the unemployment rate in the region to fall to 9.4% from 10%. In the year 2018, Europe is expecting that unemployment will fall to 8.9%. If this does indeed happen, it will prove to be overwhelmingly positive as 2018 would see the lowest unemployment rate since the year 2009.
Why some believe the USD will take the lead
As with those on the EUR side of the equation, the big reason that some believe that the USD will take the lead has to do with an improving United States economy. While the US economy did slow a bit early in the year, experts are pointing to the recent retail sales report as proof that the slow growth is dissipating.
Recently, the Commerce Department announced that retail sales grew 0.4% month over month in April. That’s incredibly positive news as retail sales only grew by 0.1% in the month of March. At the end of the day, retail sales is an incredibly important metric as strong retail sales show that consumers are spending money, meaning the outlook is positive in the minds of consumers.
In a statement, Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, recently had the following to offer:
It’s a pretty decent overall picture of the US economy…Consumer spending is rebounding, though possibly not as much as we expected. On the inflation front, there’s not a lot of pricing pressure, and it looks like inflation is gravitating toward the Fed’s goal.
What traders should be watching for ahead
Moving forward, traders should be keeping a close eye on the EUR/USD currency pair, and for good reason. The pair is likely to present several profitable opportunities ahead. If you’d like to turn these opportunities into a profit, all you need to do is keep a close eye on the news. In particular, pay attention to any economic developments out of the United States and Europe. After all, since currencies can only be as strong as the economies they represent, updates in economic data out of either region will likely lead to movement in the pair that savvy traders can capitalize on.