Product in the Spotlight: Ripple Euro

On March 19, 2018, BitBay, the most prominent cryptocurrency exchange in Poland, added XRP to its list of tradable assets, which led to a surge in the XRP/EUR price. By the end of April, news about Ripple’s strategic partnerships with companies in Europe and Asia started doing the rounds, which drove Ripple to rise 6.67% against the USD. Some of these companies included UniPay from Georgia and MoneyMatch from Malaysia.

In early May 2018, Santander, the Eurozone’s largest bank by market capitalization, announced that it will use blockchain for institutional voting in its annual meetings. In April, the bank had also announced its intention to launch a blockchain-based, cross-border payment system, with stakes in blockchain specialists, such as Ripple. This led to a rise in the XRP/EUR value, which touched 0.63.

On May 23, 2018, the Head of the Bank of Spain, Maria Linde, issued a statement saying that cryptocurrenices have more risks than benefits, taking XRP down by 7.60% against the euro. For most of the day, the pair traded at an average of 0.52.

The Eurozone has been in the midst of political turmoil for some time now. The euro itself went down to a 5-month low around the third week of May, due to the Italian crisis. Although the countries are not too keen on cryptocurrency, banks are showing an interest in blockchain technology. Ripple is a cryptocurrency that has been adopted by leading financial institutions. Even if regulatory pressures take down its rivals, it has a scope of performing well against the euro, with its strategic partnerships with European banks and companies.

Factors that Drive the Euro and Ripple/Euro Currency Pair (XRP/EUR)

  1. Monetary Policy: The European Central Bank and its decisions regarding interest rates significantly impact the euro. The ECB’s press releases and conferences are important events to follow. The ECB holds council meetings every other Thursday and makes announcements regarding interest rates. It holds press conferences after every first meeting of the month. A higher interest rate is usually associated with higher currency value.
  2. GDP Release: The overall economic output of the Eurozone affects the value of the euro. The GDP figure is released in the form of quarterly reports, released two months from the quarter end.
  3. Trade Balance: A current account deficit will mean more financial capital leaving a country than the amount entering it, which is bad for the currency. Germany and France are the two largest exporters in this area. So, traders should look into the accounts of these countries.
  4. Prices and Inflation: CPI is the key measure of inflation in the Eurozone. However, the CPI itself doesn’t affect the euro as much as the CPI Flash Estimate and German Preliminary CPI, released two weeks before the CPI. The inflation level forms the basis for monetary policies by the ECB.
  5. Euribor (3-month Euro Deposit): Euro-denominated deposits outside the European Union are called Euribor deposits. The interest rate of 3-month Euribor deposits acts as a benchmark for estimating the exchange rates. The greater the interest rate differential in favour of Euribor against another currency, the more likely the chance of a rise in the value of that currency pair.
  6. Cross Rate Effect: The EUR/USD rate is impacted by non-dollar exchange rates, like the EUR/JPY. A weak euro may cause a decline in the EUR/JPY rate and a falling EUR/USD.
  7. Political Factors:The euro is affected by political instabilities like the threats to the coalition governments in Italy or France. A substantial amount of German investments in Russia makes Russian financial stability an important factor in the exchange rates. As political stability can shift quickly, it’s not always easy to predict how the euro will be affected, but keeping an eye on developments particularly within the Eurozone certainly gives an idea of how things might pan out.

Studies have shown that XRP is one of the cryptos that show safe haven properties, due to its lowest correlation with other cryptocurrencies. In times of falling prices of rival coins, it could be the asset that investors choose to put their funds in. That said; all trading comes with risks and therefore traders should think carefully before making any market moves.