It is of interest to note that the EURO slide continues and might continue on into June as well. This implies that the euro (currency) is almost on track to reach parity with the dollar. That said, what could this mean for the German manufacturers’ outlook?
Is Germany’s Euro Slide Ahead of German Factory Orders Day After Making a Strong Recovery? Could this be the end of the year euphoria and how will investors react? In my view, I believe that Germany’s Euro slide should stop and not head any further up, but rather back down and leave the currency at parity with the dollar.
There are many reasons for the German manufacturers to look for parity between the EURO and the dollar. Let’s see what I think:
First, the main reason why companies in Europe are exiting the euro so quickly is because the EURO is getting too strong. Since when has it become too strong?
Second, the move to raise interest rates has caused the EURO to fall and thus helps, as well. Most of the euro is denominated in dollars, so if the euro falls below the dollar (meaning the devaluation) then the U.S. dollar strengthens and the EURO has no further impact.
Third, the further weakening of the euro has a more adverse effect on the United States than the European countries. Once the euro slides below the U.S. dollar, this will make Americans spend even more on the U.S. dollar and they are doing so right now!
Fourth, we all know that the United States can never afford another prolonged dip in the euro. There will come a time when the U.S. dollar rises so high, so fast that the euro will have to buy power left and, perhaps, the U.S. dollar will rise so high, it becomes too strong, too fast that no one will be able to buy anything else at all! This is probably when the U.S. dollar ends the major downtrend it is on now.
Finally, once the euro falls below the U.S. dollar, the U.S. dollar will likely rise in value due to other nations’ recovery. Therefore, the U.S. dollar should rise as the world economy stabilizes. Thus, the euro will have lost its value, which means it is no longer worth purchasing anything in Europe or anywhere else.
These things are happening right now and there will be a major change in the euro around June or possibly the middle of July. The sad thing is that the euro is on a significant ascent right now and it will probably continue to rise.
If the euro falls below the U.S. dollar in the future and the global economy recovers from the massive recession, then the euro will likely rise very rapidly. As this happens, the dollar will start to decline, while the euro is still well above the dollar. At that point, the U.S. dollar will be the only currency worth considering for the investment cycle, particularly for the U.S. manufacturers and especially for the smaller companies.
Therefore, if you are a small manufacturer or a Dutch manufacturer companies, do you really want to hold back your decision making about your investment for a month or two? Please consider all this and think on it.