Why we predict EUR/USD Weakness in Summer 2011 – forex tips

5 Causes of EUR/USD Weakness

Forex Trading these days is not quite good for EUR/USD. The pair remained below 1.4250 and seems to remain that way or could drop further. It seems that the currency pair is still not recovering from the Euro sell-off.

The weakness of Euro is brought about by several events and if these events continue the weakness will continue as well and could even worsen. These events are:

1 – Risk Appetite has Decreased Substantially
Other economists say that there is a collapse in risk appetite of investors. This means that there is a huge drop in commodities and currencies with high yields as more investors continue to deter financial losses.

2 – Strengthening of the USD
As the US Dollar’s downtrend ended investors have started to invest back in the currency. The result is that investors short Euro now and long the USD.

3 – Economic Turmoil in Several EU Nations
Financial turmoil in these EU member nations has caused widespread speculations about the status of Euro as a stable currency. Several economists have already predicted the end of the European Union and the death of the Euro.

4 – European Central Bank have not increased the Interest Rates
Interest rate differentials have been a strong source of profit for Forex traders. Now that USD is rebounding from its weakened state and Euro have lost its strength from the financial problems affecting EU nations the differentials between Euro and USD are now adjusting to normal levels. It is like a seesaw: previously, USD is going down and Euro is going up. Now, Euro is going down and USD is going up.

5 – Overall Economic Figures of EU is Weaker than Expected
Investors are weary on investing in EU and its currency as more countries under it are now in a financial crisis causing civil unrest. The idea that EU is coming to an end became more plausible as the financial crisis remain unabated.