The European economy has been struggling for quite some time now. As a result, we’ve seen moves of desperation from the ECB to get the European economy under control. As QE starts to take effect in the region, the currency is reach lows that we haven’t seen in more than a decade. So, today we’ll talk about the events leading up to the economic dismay being felt in Europe, the plan put in place by the ECB to combat the economic landslide, and what we’ve seen in theEUR/USD currency pair as a result.
What Caused The European Economy Landslide?
I started covering the European economy in early 2014. At the time, things looked great. Germany was steaming forward, dragging the rest of the currency zone along with it toward a recovery. However, in mid-2014 things started to take a turn for the worse for the European economy.
In mid-2014, Russia started to make advances toward the Crimean Peninsula. While the land is owned rightfully by Ukraine, Russia believes that they rightfully should own the peninsula. As a result, we’ve seen quite a bit of military action as Vladimir Putin vies for control of the strategic land. However, Western countries don’t agree with what Putin decided to do; so, they decided to enact sanctions against key members in the tension fueled debate. Unfortunately, those sanctions would prove to not be enough as Russia continued to advance on Ukraine owned land. So, more sanctions were added, this time, against the entire country.
In response to the sanctions, Vladimir Putin put a ban on many food imports from western countries; essentially cutting off trade with the West nearly completely. As one of the Eurozone’s largest trading partners, Russia caused quite a bit of economic pain in Europe when this move was made. Soon, we saw economic turmoil striking the then 19 member currency zone as economic predictions continually were reduced.
The Plan Put In Place by the ECB
In an effort to stop the economic landslide we started to see in Europe, the European Central Bank created a quantitative easing program. Through the program, the ECB would purchase both public and private sector assets in an attempt to pump money back into the market. While the plan is a short-term one, it’s also incredibly large; so at some point, it should have a great impact on Europe as a whole.
What we’ve seen in the EUR/USD Currency Pair
While the European economy continues to struggle, we’re starting to see more and more positive economic data out of the United States. For instance, for the last few months, new payrolls have smashed expectations, pay rates have been rising, and home sales are on the rise in the United States. As a result, we’ve seen great increases in the value of the United States Dollar while the value of the Euro continues to fall. Over the past month, the value of the currency pair has fallen from 1.1326 to 1.0846.
Will The Downtrend In The Currency Pair Continue?
Most likely; and believe it or not, it’s not necessarily a bad thing for Europe. As the value of the Euro and the EUR/USD falls, the cost of European goods will be less expensive around the world; which should equate to higher foreign trade figures and a better economic outlook in the long run. With that said, we’ll most likely continue to see the active downtrend for at least a couple of months while the Eurozone gears up for an economic comeback!
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