So I pulled up the data from January 2017 on both Euro and USD. I think everyone can agree that was when you wanted to go long EURUSD. Here’s what I found on each of the categories that I’ve been told are important to fundamental analysis:
- 17-Jan euro usd
- interest rate 0 0.75
- inflation rate 1.8 2.5
- gdp growth rate 0.6 1.2
- unemployment rate 9.6 4.8
- balance of trade -1583 -48715
- government debt to GDP 90.3 105.8
Here’s where we stand today:
- 18-Feb euro usd
- interest rate 0 1.5
- inflation rate 1.3 2.1
- gdp growth rate 0.6 2.6
- unemployment rate 8.7 4.1
- balance of trade 26273 -53118
- government debt to GDP 89.2 105.4
As I’ve noted before the big thing that stood out in the Jan 17 assessment is that negative trade balance on the US side. I still maintain that $48B/mo in negative cash flows (now $79B!) just from running the economy has to dwarf any contribution from Forex speculators, but maybe I’m wrong. Yes, trillions of dollars move through Forex and derivatives, but these are Euros being bought with no stop loss or take profit, and minimal concern for order entry position. We would have to go all the way back to May of 2014 to see conditions that greatly favored the US.
Comparing this year to last, Euro is down 28% on its inflation but up 9.4% on unemployment and 1.2% on government debt. The trade balance has swung $24.7B in favor of the Euro. GDP growth rate and interest rate has not changed.
On the other hand, the USD had doubled its interest rate while losing 16% of its inflation. GDP has more than doubled and unemployment has improved 14.6%. The massive trade deficit has worsened 9% to -$53B. Government debt improved last year 0.38% but I expect that number to worsen once Trump’s tax plan is on the books.
Tomorrow’s inflation data is projected to show 1.9% which would be even worse at -24%.
So going category by category:
- interest rate: favors US for the moment (see below)
- inflation: favors Euro
- GDP: greatly favors US
- unemployment: US
- BoT: greatly favors Euro
- Government debt: favors Euro, soon will even more heavily
I’m not seeing inflation to justify interest rate increases on the USD side. If you want to buy bonds I think now is the time to do so. You can resell them later once the US announces it is backing off from interest rate increases. The Trump tax plan did prop up the stock market momentarily, but it also incurs debt that’s going to hurt the US if it wants to continue raising interest rates.
The US cannot fix its trade balance. The new tax plan really only helps plutocrats. I don’t think giving more money to the average citizen would help either since the average citizen would just spend more on foreign goods. The only thing I can think of is some sort of redistribution of wealth, with a focus on helping small businesses. At any rate, I’m not a politician just a speculative spectator.
Other than long EURUSD, JPY, ZAR, and CNH all look strong with high trade balances to counteract the USD. ZAR and CNH have higher interest rates, though Oanda doesn’t pay interest on the CNH trade. NZD looks more risky but it might be worth a play as well. There isn’t as much pressure for them to drive their currency down like there is for JPY and CNH. I like ZAR mostly as a hedge against the negative carry trade from being long the other currencies, but it should improve in value as well.