euro-cracking

Why Investors are Losing Confidence in the Eurozone

We live in an increasingly contracting financial and economic world, where markets are increasingly susceptible to global trends and forecasts. A decline in one region inevitably impacts on another, creating a perpetual cycle of crisis, volatility and ultimately economic collapse. This is certainly the case in the Eurozone at present, where the region’s long-standing problems are being exacerbated by external conditions and trends.

Most concerning is the economic crisis gripping China, where diminishing growth and poor manufacturing data sets are set to weaken the demand for Eurozone exports. This is having a detrimental impact on business owners and particularly investors in the region, who are faced with the prospect of fading returns and long-term stagnation. From an investors perspective, the Eurozone and the single currency is currently triggering a flight response and decidedly risk-averse approach.

PMI and the Forex Market: The Issue for Investors

Earlier this month, the European Central Bank acted on information produced by data firm Markit. From a survey of more than 5,000 businesses across the whole of the Eurozone, it was determined that the Purchasing Managing Index (which measures the performance of manufacturing and service sectors in the region) fell from 54.3 to 53.9 between August and September. The level of 50 is considered to be a benchmark for consolidation, so the current downward trend suggests that these sectors are entering into a decline.

If this appears to make Eurozone stocks and shares unappealing to investors (even allowing for their comparatively low price), the Euro is hardly offering solace to those with an interest in the Eurozone. In fact, despite showcasing solid gains against the US Dollar at the beginning of the month, the recent data releases and continued volatility in China have caused the single currency to slide once again. The final blow was the fact that Euro inflation was revised lower for August, which in turn created speculation that the Central Bank would implement more stringent stimulus measures. With the current quantative easing program estimated to be worth a staggering 60 billion Euros each month, this creates an unstable and struggling market where the single currency holds little or no sway.

Ultimately, it is little wonder that investors are seeking flight from the troubled Eurozone region. The low cost of stocks is not enough to offer value, as the volatility that underpins the regions means that there is little chance to achieve tangible, long-term gains. From the perspective of forex traders, the decline of the single currency leaves it hovering on the precipice of extinction once more, while the respective growth of the British Pound and the US Dollar continue to leave the Euro in their wake.

The Future for the single Currency and the Eurozone

Even for forex traders that use expert analytical resources such as FX Pro, there is little incentive to invest in shares or a single currency that have been trapped in a cycle of debt and decline for half a decade. These entities will continue to remain doomed until there is radical change, such as the suggestion by the French economy minister that all Eurozone member states should establish permanent transfer mechanisms to channel funds from richer states to those in need.

This would represent a decisive move away from the current structure, which lacks clarity and a clear sense of fiscal responsibility. Whether it is something that individual states would welcome has yet to be seen, but it would certainly appeal to forex traders and underlines the type of change required to affect long-term improvement.

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