2011 was the year of the euro, but most investors are hoping for the opposite to be true this year. Rather than focusing on the issues overseas, investors would like to keep their minds occupied by the slew of encouraging data from recent U.S. reports. But for now, the euro zone remains under the microscope for the entire world. As for the euro itself, the currency is sitting at lows not seen for quite some time, as it seems to be losing ground to the greenback on a daily basis. The EUR/USD exchange rate is currently sitting below 1.27, a low that hasn’t been reached since early 2010 when the first euro crisis reared its head [see also 2011′s Best Performing Commodity Was……Milk?].
With the euro under an enormous amount of pressure, many are worried of a recession overseas and the impact it would have at home. Investors, no doubt, are tired of hearing about European woes and watching markets violently react. But the start of getting Europe out of the headlines will be tangible proof that the currency bloc can function healthily on its own. That will all start with encouraging key economic data from all throughout the region, and today will see the release of one of these reports [see also Euro Free Europe Portfolio Now Available].
Today marks the announcement of the European Central Bank (ECB) rate decision, which is expected to hold at interest rates at 1%. But the importance will not only be in the figure itself, but the language used to make the announcement. The ECB President’s language will be “hawkish” if he is pessimistic about the inflation outlook for the region’s economy. In that case, the markets may react in anticipation of a higher chance of a rate hike in the foreseeable future. Conversely, “if the ECB President believes inflation is in check, his remarks will be “dovish,” as the market perceives a future rate increase to be unlikely” writes Daily FX.
Click to enlargeWith this major announcement on tap, today’s ETF to watch will be the European ETF (NYSEARCA:VGK). The fund is comprised of stocks from 16 of the most powerful nations in Europe and features hefty allocations towards the euro zone. VGK has had a tough time over the past year, losing more than 11% in the trailing 12 month period. If tomorrow’s report comes in as expected with a strong outlook, look for VGK to have a great trading day, but an unexpected change or negative outlook from the ECB may create significant headwinds for this fund [see also ETFs To Play AAA Europe].
Disclosure: No positions at time of writing.
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