French Yellow Vests Severely Compromise the Future of the Euro.

Background

Following the election of President Emmanuel Macron of the Center-Left Forward party in 2017 within the framework the nation’s lowest voter turnout in 20 years, his policies have caused the French rebellion Spirit to re-emerge full force. Macron’s fuel tax, the repeal of the wealth tax, and loosening of labor rules that resulted in mass corporate layoffs have caused the emergences of the middle/working class protest known as the Yellow Vest Movement. Both peaceful and violent Protests have been ranging in major cities since early November 2018.

This caused a run on the banks, with many ATM & Banks shutting town during the initial rush, due to the fact French banks lend 3k dollars for every 100 they keep on deposit. This led to initial plummet in the value of the Euro from a high of $1.23 US dollar to one Euro to a low of $1.13 US Dollar to one Euro, as the below graph from The Financial Forecast Center shows.

During the chaos, with the movement still calling for Macron’s resignation and his opponents on the extreme left & right struggling to capture the support of the Yellow Vests, the Marcon Administration started to concede to calm the upheaval. Macron did away with the fuel tax and vowed to raise the minimum wage, but he stands hard on the repeal of the wealth tax and labor regulations while offering a decrease on both household & income taxes has calmed and started the gradual increase to the Euro & the FOREX Market, as a whole.

But where is the trend going? To predict this, we must look at France its self, which is the 2nd largest economy in the EU. At this moment unemployment stands at around 9% and the GDP has slowed to 1.7% growth with the country buying more than its selling. However, a bright spot is the aviation and shipbuilding industries that are predicted by the French Statistics Bureau to add a few percentage points to that.

Currently, the Euro is holding a roughly .014% higher value than the US Dollar. The Financial Forecast Center offers a prediction of a rise of .04% over the next five months, given that the current status quo remains in effect.

Euro to Dollar Exchange Rate Forecast Values by Month

U.S. Dollars per one EU Euro.  Average of Month.

MonthDateForecast Valuevg Error
0Jan 20191.1418±0.0000
1Feb 20191.147±0.0161
2Mar 20191.153±0.0171
3Apr 20191.150±0.0176
4May 20191.163±0.018
5Jun 20191.153±0.0184
6Jul 20191.181±0.0186

What factors should you watch out for to help determine whether the status quo will remain unchecked and if you should risk the FOREX market and European Currency?

The short answer is yes you should invest in the FOREX market if you had already decided that was appropriate for your portfolio. The long answer covers when you should get into the market and how you should diversify. Even though the political and economic climate of France has caused volatility in European Currency, FOREX is still a profitable and relatively stable investment, with a moderately aggressive to conservative rating, under most circumstances. European Currency still fit that model, though they will remain one the most volatile in the market (second only to South American Currency). Apart from the obvious French turmoil, these are the reasons you may want to move some money out of the Euro market & into other currencies.

 

Germany- Unemployment -4.1%

Europe’s number one economy did have a slow 2018, narrowly avoiding a recession with 1.5% GDP growth, down from 2.2% in 2017. Several factors affected this among them the increase in the price of oil, Brexit & British Currency volatility, the higher cost of shipping to the USA due to tariffs, and the drop in German auto sales as manufacturers had to retool to meet the new emissions rules in Europe. The bright spot is that the automakers have been able to adjust, and sales should return to more normalized levels.

Great Britain-Unemployment-3.9%

As it stands the British Pound Sterling remains at a value of $1.33 US dollars but could fall as fears over failure to reach a Brexit deal before the March deadline arrives. In addition, they also narrowly avoided a recession, posting 1.2% GDP growth in 2018. The China/USA trade stalemate and political upheaval in nearby France have taken its toll. Their bright spot is a doubling down on Brexit talks and the calming in France may turn things around in 2019. It is a great time to hold on to any Pound Sterling you may already own, as most predictions say it will rise in the next few months. If it drops below its current value then it is a great time to buy more.

China-Unemployement-4.09%

Like some of its’ European counterparts, 2018 was a rough year in Beijing. US trade tariffs, issues with Chinese auto’s meeting new environmental regulations in European countries, less production at factories, and the trade deal breakdown with the United States took their toll. China posted growth of 6.6% in 2018, down from 6.9% in 2017. Most analysts are predicting average growth of 6.3% for 2019, thus showing that baring a major event, they are nowhere near any sort of a recession.  Latest reports, at the time of printing, show that China & the US may be near a trade deal, thus returning production to many factories. The outlook for investing in Chinese Companies, buying Government Bonds and using the manufacturing resources is good. The Yuan sits at .15 value of USD, the positioning of China as becoming a greater economic power makes it a desirable investment on a very long-term basis.

India-Unemployment-6.01%

India’s GDP in 2018 showed growth of 7.2% in comparison with 7.3%. Its current struggles are heightening tensions with longtime rival Pakistan. These are the elements to watch as those tensions show no signs of letting up, as recent air strikes on both/from both countries catch the attention of every major country. Currently, the Rupee is worth .14 of a USD and keeps the country as a good place for manufacturing or direct goods purchase, but not investment, due to concerns over the possibility of continued conflict.

Turkey-Unemployment-12.3%

The largest economy in the Middle East is a good gauge for the entire region. It posted a 4.5% GDP growth in 2018 down from 7.3% the previous year. It, like the entire oil region, faces barriers with the US and China trade crisis coupled with the initiative for clean energy sweeping the rest of the world. Countries like Qatar & United Arab Emirates are making strides to enter this market, but the rest of the region is still largely clinging to fossil fuels. In addition, continued strife in the Palestinian region and Syria always play a factor. Still, no country in the region is near a recession in the next few years. Shown below are the value of the various currencies remain steadily at a strong buy position across all FOREX exchanges. You can get current information at the following Link:

Exchange Rates.org

Brazil-unemployment 11.1%

The largest economy & trendsetter in South America posted 1.1% growth from 2017 to 2018 and the Brazilian Real currently sits an exchange rate of 1 to .27 of a US dollar. Thus, making South America less of an investment opportunity and more of place to get more bang for your buck in the purchase of real goods, manufacturing, and commodities. Current struggles include constant struggles with OPEC over oil dominance, the Venezuelan crisis, and constant political upheaval. The five-year outlook for all South American Currency is below (courtesy of the Canadian Minister of Finance) and shows that for the foreseeable future direct investment is not the best idea.

 

Conclusions

The Yellow Vest riots did set off a firestorm in the Euro Market and have caused many investors to flee for other currencies or exchanges altogether. We have seen shifts of 15% up and down on its value in a short 3-month period. Current recommendations stand at hold and tentative buy with rise predictions remaining a very low 4% over the next few months. The hot ticket currencies are currently in the Far East with those poised for double-digit growth over the next ten years.

If the Macron Administration will continue some compromise with the protesters, we will see the situation calm and the Euro stabilize. However, with French elections insight in just a little over two years, we may see another significant drop around 2022 if Macron is ousted. The drop could be a long-standing one, so wise investors might be better served with some tentative buying now only to sell before late 2021.

The Yellow Vest Protests did not kill the Euro, but it certainly downgraded the value of it as both a currency and an investment. Europe is at a crossroads and France will continue to be a lynchpin in the European structure that will require scrutiny regarding investing in the Euro.

close

Enjoy this blog? Please spread the word :)

246
20