The global risk-off environment and improving conditions in the Eurozone are contributing to a jump in the euro currency and related exchange traded fund.
The CurrencyShares Euro Currency Trust (NYSEArca: FXE) rose 1.2% Monday and is coming up against its short-term, 50-day moving average. FXE has gained 1.2% over the past week but still remains 9.6% lower year-to-date.
Improving economic conditions are strengthening the outlook for the euro currency. The Ifo index, a widely monitored gauge of economic health in Germany, rose unexpectedly to 108 points for July from 107.5 in June, the Associated Press reports.
“The recent easing of the Greece situation contributed to stronger sentiment in the German economy,” the institute’s president, Hans-Werner Sinn, said.
Supporting the German economy – the largest in the Eurozone, low unemployment and greater domestic demand have grown while other states struggled.
Moreover, the euro currency may also be appreciating on the current risk-off sentiment, triggered by a plunge in Chinese equities Monday. Sam Lynton-Brown at BNP Paribas argues that the currency has recently tended to rise during times of market stress, the Wall Street Journal reports.
In periods of relative calm, rock-bottom European Central Bank interest rates allow investors to borrow euros cheaply to fund riskier bets, notably in emerging markets. However, as risk spikes, the same investors would back off the foreign markets and buyback euros to pay down borrowings.