This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

European Assets Reap Benefit of Weaker Markets Elsewhere

NEW YORK ( TheStreet) -- I have mentioned in various articles this week that investors have been reallocating funds to European markets and out of both emerging and U.S. markets due to the relative stability of European monetary policy.

In the charts presented below I will show the current price action of European assets and the risks responsible for the money flow out of both U.S. and developing economies.

The first chart below is of the euro over the dollar. The euro broke to new highs Tuesday vs. the greenback, moving to more than the 1.34 area. This level has only been crossed twice this year.

An exchange-traded fund that closely tracks the movements of the euro is the CurrencyShares Euro Trust (FXE).

Investors have sold dollars due to uncertainty surrounding the future of U.S. monetary policy. This has created a sort of paradox as investors have sold both Treasuries (thus increasing interest rates) and dollars in order to avoid incorrectly guessing the Federal Reserve's next action. As rates rise, the dollar is expected to become a more attractive investment, but the uncertainty over monetary policy is keeping money on the sidelines.

As long as the future of U.S. monetary policy remains uncertain, the relative certainty and stability seen in Europe should keep the euro moving higher.

The next chart is of the Deutscher Aktien Index, or DAX, which is Germany's blue-chip stock index. The DAX has been a strong performer over the past year and is currently trading at record highs.

An ETF that closely tracks the price movement of the DAX is iShares MSCI Germany Index (EWG).

As U.S. equity indices have corrected lower, and funds have flowed out of emerging markets, strong European equity markets have remained at elevated levels.

Strong economic data have bolstered the argument that European economies have largely reached a bottom with regards to economic contraction. This has improved investor sentiment and been a cause for continued money flow into equities.

Although the DAX has traded within a range for the past month, there are no signs of a major correction. If the index does decline, it should go no lower than the 8000 level.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
FXY $81.50 -0.38%
FXE $105.55 -0.76%
EWG $29.63 0.82%
AAPL $127.60 2.28%
FB $83.09 2.87%

Markets

DOW 18,034.93 +208.63 1.17%
S&P 500 2,100.40 +19.22 0.92%
NASDAQ 4,994.6020 +62.7870 1.27%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs