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Week Ahead: May 25

Short Description

EVER JOINT European Debt? This is a big video for the euro!! ICYMI German Chancellor Angela Merkel and French President Emmanuel Macron agreed on a plan for a five-hundred billion-euro EU recovery fund. That could have huge ramifications for currency pairs like EUR/USD, EUR/GBP and EUR/JPY – I discuss how and more in this week’s preview for the week ahead – including highlights from the economic calendar.

Video Script

Hi everyone,

In England we say that some people like to “over-egg the pudding” – and I have to admit I might be one of those people. It’s a saying that means to go too far in exaggerating. OK Rich, what are you talking about puddings for when there are trades to place? OK so what I’m saying is I’m aware I’ll sometimes over-egg the pudding *wink* – but I think we might be on the cusp of a MASSIVE moment for the EURO currency- and I’ll explain why in just a minute. And by the way I’d love to hear if you have a similar saying – you can drop a comment on the video and I’ll make sure to give it thumbs up and comment back.

First let’s dig into the key events in this week’s economic calendar. Actually I think it’s fair to say it’s a slow week for economic data so traders will probably take their cues from elsewhere – things like US-China relations, coronavirus vaccine trials and whether the latest US stimulus bill can pass in the Senate. A quick reminder it’s Memorial Day and the UK Spring Bank holiday on Monday so US and UK stock and bond markets will be closed. For the rest of the week I’ve highlighted consumer confidence because ultimately, how quickly we recover from this economic downturn will depend on people’s confidence to start spending again. 

Now before I talk about this big moment for the euro, can I ask that if you’re trading the euro and other markets and you’re glad I’ve made this video, please click that like button, it really helps spread the word for these videos.

OK in case you missed it- German Chancellor Angela Merkel and French President Emmanuel Macron agreed on a plan for a five-hundred billion-euro EU recovery fund. Now that’s a lot of money – but it’s not the amount of money that matters here. What matters is that the European Union – as an entity by ITSELF – will raise the money by issuing bonds. This has never happened before guys! It was attempted in 2011 during the Eurozone debt crisis but politicians couldn’t agree. So in the end the ECB and Mario Draghi’s “whatever it takes” line saved the day.

Here’s the thing, it has always been that European nation states by themselves have to borrow money for their own uses. Now ask yourself this - as an investor, do you accept the same interest rate from Italy- which has massive debt and slow growth -as you do Germany, the strongest economy in Europe? Of course not. You need higher interest rates for investing in Italy than you do Germany to compensate you for the higher risk. The difference between the yield on Italian bonds versus German bonds is a big deal for the euro currency – it’s called the Italian-German spread. What it gives you is a measure of the risk of investing in Europe.

Now - whether it’s a Eurobond – or Coronabond – or whatever it gets called in the end  – the risk of your investment is spread across all of Europe. So that’s the crux of it – and why this could be a massive deal - investing in Europe – if this fund were to happen – might be seen by investors as less risky – meaning more investment could happen – which would increase demand for Euros to make those investments. Notice I used the ‘if’ word there though – this thing still needs to be agreed by all 27 member states of Europe and that will be an uphill struggle- and I suspect news around its support or lack thereof could be a key driver for currency pairs like the euro-dollar, euro-yen and euro-pound  moving forward.
 
Right enough from me, Good luck with trading this week, and make sure to subscribe so you don’t miss our next video.

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