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TheStreet Open House

Global Macro: Euro Drops on Draghi's Dovish Comments

NEW YORK ( TheStreet) -- Dovish comments from the European Central Bank in response to continued U.S. monetary stimulus outweighed positive news from German elections to push the euro lower on Monday.

The Federal Reserve chose to keep its $85 billion monthly bond purchases unchanged last week, which led to a strong bid higher in the euro/U.S. dollar currency cross.

With the Europe attempting to regain solid economic footing, a stronger currency is not conducive to growth.

ECB President Mario Draghi said on Monday that the central bank was willing to do whatever was needed to keep interest rates suppressed at appropriate levels.

In spite of an overwhelming victory for Chancellor Angela Merkel in German elections on Sunday, the euro came under selling pressure when trading began Monday.

The first chart below is of CurrencyShares Euro Trust (FXE).

Mixed economic data also influenced the euro. The services industry outperformed expectations as manufacturing underperformed, leaving investors fearing an unven recovery.

The euro is at prices not seen since earlier in the year, but the currency may sell off as the ECB remains committed to weakening rates in order to keep Europe's economy growing.

The next chart is of iShares MSCI Germany Index (EWG).

Merkel's landslide victory on Sunday gave the eurozone a strong leader committed to keeping the euro intact. Although that is positive news, German equities are already at lofty levels and look primed for a correction, alongside other world equity markets.

Germany released weak manufacturing data while its services industry outperformed.

The trend for the index below looks to be lower for the intermediate term, even though the European economy and Germany are improving.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

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