As the coronavirus pandemic has been inject elements of doubt to the financial markets, investors appear to be analyzing various resources so as to recognize the tools that are most likely to possess safe haven qualities.
Since May 2020, valuations in the Invesco CurrencyShares Euro Trust (NYSEARCA: FXE) have risen by over 5.5percent and those moves might be giving some investors an idea of strength as a preferred safe haven asset. There are technical and fundamental factors that suggest prospects to get a downside reversal are building. If the recent trends in this macroeconomic frame continue, change declines in FXE could depress valuations and ship the finance toward previous highs of 102. 20 in the next 2-3 months.
Resource: Author via Tradingview
Within the past six-month period, the Invesco CurrencyShares Euro Trust has struck net flows of 106.3 million. From the chart displayed below, we could see that the height of recent bullish action happened close to the end of March and through the early parts of April 2020.
However, most of this chart indicates bearish transaction action and this fact alone ought to be enough for investors to be wary of the potential for new price drops in FXE. This time period reflects the increases in market volatility that occurred as a result of this COVID-19 pandemic, so this should work as an indication of where tendencies might be led in the long run.
A similar picture emerges when we analyze FXE trading flows that have been recorded over longer-term period frames. Over the last few years, the Invesco CurrencyShares Euro Trust has struck net flows which are more profoundly negative at -217.4 million and this suggests the bearish trajectory is firmly solidified. Obviously, that pre-dates that the COVID-19 macroeconomic environment and reveals the extent of the vulnerability that stood in place earlier wider market volatility reached historical levels.
During the first-quarter period, eurozone economic growth figures dropped by 3.8%. This decrease was smaller than anticipated but the operation followed a dismal operation of 0.1% throughout the fourth-quarter period of 2019.
Finally, this paints a picture of a region that has been on a feeble financial footing before the COVID-19 pandemic limited consumer actions and required businesses to close if they had been characterized as”non-essential”. The negative GDP rates that were published throughout the interval are the worst on record and this places rising currency worth in a position.
Source: BBC News, Eurostat
In Germany (the greatest economy in the bloc), GDP declines were the deepest we’ve observed as 2009 and quarterly results by Italy, France, and Spain were the worst on record. Germany, Italy, and France have entered into a recessionary period and we expect states to be added to this list once the GDP results for the interval are published. During the month of May 2020, regional unemployment figures in the European Union climbed to 7.4percent following a long period of decline:
In some cases, we may have observed analysts dismiss negative changes in the region’s base unemployment figures as a result of overall weaknesses in the labor participation rate. But it has to be noticed that the labour participation rate actually climbed to long-term highs throughout the fourth-quarter period of 2019 (at 57.6%):
Resource: Trading Economics, Eurostat
In labor markets, this is an upward trend that was in place for the entire period in 2019 and it would be hard to generate a dismissive argument which might indicate a more positive explanation for recent increases in the regional unemployment amounts.
The simple fact remains that the economic uncertainties that have been produced by this COVID-19 pandemic have negatively impacted a large proportion of the available workforce in Europe and debatable tendencies could expand if regional authorities make reductions in unemployment benefits. As long as the COVID-19 pandemic continues to induce volatility and uncertainty in the financial markets, investors will need to recognize protective assets in order to obtain shelter from the storm.
Recent rallies in the Invesco CurrencyShares Euro Trust might be giving some investors an notion of strength as a preferred safe haven asset. On the other hand, the prospects for a downside reversal are constructing and reversals in FXE can send valuations considerably lower in the months when these macroeconomic trends continue.
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Disclosure: I/we don’t have any positions in any stocks mentioned, without any plans to initiate any places within the next 72 hours. I wrote this post , and it expresses my own comments. I am not receiving reimbursement for it (besides from Seeking Alpha). I don’t have any business relationship with any firm whose inventory is mentioned in this report\.