EUR/USD The Perfect Storm?

Recently, the EUR/USD pair has been selling off rather drastically. There are a lot of things influencing this pair at the moment, and quite frankly most traders are probably not aware of the structural implications of what has been going on.

While the surprise election of Donald Trump initially sent the US dollar plunging, cooler heads prevailed and realized that the Donald Trump administration was going to be much more business friendly than the previous administration. Because of this, investment in the United States should increase, and therefore money should flow across the border. Beyond that, Mr. Trump is also suggested that interest rates are too low, so there will be political pressure on the Federal Reserve to raise interest rates sooner rather than later. He fears a bubble forming, unlike his predecessors.

On the other side of the Atlantic Ocean, we have a real mess. The European Union is threatened by several different factors. The United Kingdom leaving the European Union of course was the first serious blow to the EU itself, but there are several elections coming in the next year that could completely obliterate the EU given enough time. Anti-EU parties are starting to show real strength in places like Austria, France, the Netherlands, and several other member states. It is hard to imagine a scenario in which the anti-EU coalition wins in a place like France and the European Union survives longer term. There are far too many issues, and quite frankly far too many cultures to fit under the umbrella of the European Union. A quick example: the European Union doesn’t even have a trade agreement with the United States or Canada. It’s that broken.

There calls for parity between the Euro and the US dollar, and quite frankly that’s a reasonable assessment. We have recently broken through quite a bit of support, and there are more “what if’s” on the European continent then there are on the North American continent. Because of this, money will continue to flow from East to West across the Atlantic.