Investing in the booming United States? A strong euro says ‘stay home’

“I have never seen an economy as good as the United States today,” said Mark Zandi, chief economist at Moody’s Analytics, Told CNN Business. “The economy is booming. It breaks out everywhere.

The US economy is experiencing a massive surge. But should you invest in it? As the dollar still has to fall sharply against the euro, it is important to weigh all the possibilities.

So far, the basic news is positive.

“A revival of the US economy is increasing demand for everything from airline tickets to dinner reservations. Many companies that could benefit from it cannot even keep pace. “ written the Wall Street Journal.

“Customers flock to restaurants, but owners can’t find enough people to cook or serve their food. People are buying cars in record numbers, but dealerships cannot fill their lots. “

The recent job creation figures were the only disappointment with only around 240,000 new jobs recorded in April. But analysts say employers just haven’t been able to hire quickly enough, which is why, for example, restaurants are desperate for waiters and McDonald’s just increased its salary to $ 15. the hour to attract workers.

The basic figures are striking. Despite a contraction in the last quarter of 2020, the U.S. economy resumed a rapid recovery in the first three months of 2021 with a growth rate of 6.4% in the first quarter – the fastest growth rate since third quarter of 2003, according to forexlive analysts.

Investing in the US boom is obviously tempting, and there are plenty of possibilities ranging from stocks to alternatives to NFTs – the latter are the fastest growing market today. A work sold in March by digital artist Mike Winkelmann (aka Beeple) at auction for $ 69.3 million.

What about dollars versus euros?

Choosing to invest in dollars versus the euro area presents an obvious challenge: the profit you will make in dollars will be worth less in Europe, as the euro appreciates against the dollar.

There is a strong consensus among analysts that this is what to expect, as there is a clear trend dating back to last year.

EUR / USD has risen steadily throughout the week reaching 1.22 as of this writing.

“The EUR / USD trend was up in the second half of 2020, going from around 1.08 USD in mid-May to 1.23 USD in December as the US currency weakened against a basket of currencies on low interest rates, stimulus from the Federal Reserve and the United States. government, and as investors took a risk-based approach to rally equity markets, ” written Nicole Willing, analyst at capital.com.

Although the dollar rose at the end of December following an increase in yields on US Treasuries and rose during the first quarter of 2021, pushing the EUR / USD rate to $ 1.17 on March 30, the euro returned. right away in April.

“As the rise in Treasuries halted, the dollar retreated against the euro in April, with the rate falling back to the $ 1.19 to $ 1.20 range even as Europe declined. started slowly in the deployment of vaccinations and is experiencing a third wave of Covid-19 infections, ”continues Wittig.

The response to the problems associated with vaccine deployment in Europe is remarkable. Traders were, in general, impressed by the European recovery effort, appreciating the massive injection of funds into the economy just as the stock markets reacted to the huge stimulus package that US President Joe Biden is putting in place. artwork.

The result is that traders are betting to push the Euro up against the Dollar even when the news from Europe is bad.

“Analysts of the Dutch bank ING I saidn their Euro-dollar forecast: April has so far been a good month for EUR / USD – although Europe is still struggling with third waves of Covid. It appears that investors are very forward looking and are using the recent higher inflection in European vaccination rates to build confidence in a European recovery later in the quarter… And with little pullback seen for European rates, we could argue that the decline of the euro is also limited. ”

BNP Paribas Wealth Management analysts, in a note entitled “Taper-less Tantrum” write that they expect the Federal Reserve to announce reduced asset purchases in Q4 2021 from Q2 2022 and a first interest rate hike in Q3 2023.

They explained in the note: “At the same time, the ECB has been more verbally active in trying to reduce the eurozone rate hike. Yield spreads moved in favor of the USD. Nonetheless, short-term credit spreads are expected to stay low for a long time and this should be a key negative factor for the dollar. ”

Analysts added: “The euro is expected to gradually recover as vaccines allow European economies to emerge from the most recent round of lockdown measures. Therefore, we maintain our EUR / USD target at 1.20 and 1.25 for the next three and 12 months, respectively. This suggests an advantage for the euro. “

Technical analysts, who only watch price movements, see EUR / USD’s rise from 1.1703 picking up today breaking at 1.22. The pair is expected to break above 1.2348 and continue its uptrend from there. There is a bullish consensus for EUR / USD over the medium term from technical analysts that supports the fundamental analysis we have noted.


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