New data comparisons reveal that much of the stagnation that is currently being experienced in Europe is probably psychological in nature. Over the last 12 months, the euro area has seen growth of 1.6 percent, while in the United States over the same period of time, the growth rate has only been 1.2 percent. During this time, the U.S. economy has been viewed as much stronger and the dollar as a far better currency to hold, but in reality, the euro area has seen slightly better growth.
In the EU, the growth that has occurred has been labelled as insufficient, and it is. For the EU to be competitive and keep up with the desired rate of growth, their rate should be about 1 percent higher. But the same is true of the United States. So, while the euro area is seeing very slow growth, it is actually moving ahead of what’s going on in the U.S. For those that pay attention to worldwide events, this makes a lot of sense, but it also reveals the possibility that EU investment aversion is perhaps unwarranted. While they have the stigma because of several debt issues and Brexit complications, the EU, and the euro behind it, are actually ahead of global growth rates and not nearly as bad as what many people think. The aversion to EU assets is, it seems at this level, more of a psychological prohibition than anything else.
The backdrop of this critique does need to be taken in context. The data, while correct, was brought to light by the European Central Bank and was used to defend the actions that they have taken as far as monetary policy goes. And the truth is, because they are outpacing the U.S. in growth, the ECB might be doing a better job than what the U.S. Federal Reserve is doing right now.
However, before this conclusion is made, look at what the different central banks are doing. The ECB is cutting rates, attempting to help stimulate companies. In the U.S., the Fed is raising rates, thanks to a history over the last several years of solid growth. The Fed raised rates back in December of last year, and growth was stifled for a while as a result of that. Now, the Fed is considering another rate hike in order to help the economy at a faster pace. That does create quite a bit of tension as these central banks are moving in different directions, but for currency traders, this tension is good. It doesn’t matter if you are trading binary options or in the Forex market, when rates in central banks like what we see here are moving in opposite directions, predicting currency pair movement direction becomes much simpler to do.
This is why looking at fundamental analysis needs to be a solid foundation within your routine when looking for trade opportunities. The info that central banks use to make their decisions is typically public information, so accessing it and then forming your own decisions when making trades and predicting news events (such as future rate hikes or cuts) will become much easier to do. Short term movement in any marketplace might not rely solely on fundamental information, but that background is typically the basis for which short term movements take place in. Think of the fundamental analysis as the long term trend, and whatever technical analysis you conduct on a trade by trade basis as the short term trend. When the two match up, your decision making becomes much more directed. It’s an extra element of certainty for each trade you make.