Product in the Spotlight: Ethereum-Euro (ETH/EUR)
The ETH/EUR pair started 2018 at a value of €638 on January 1, 2018. Over the next couple of weeks, it performed well, with the pair trading at €1045 on January 15, 2018.
After that, cryptocurrency prices declined across the board and the ETH/EUR pair was naturally affected too. Japan’s regulatory crackdown, following the NEM token theft uproar which saw 523 tokens disappear unlawfully, led to all crypto assets performing poorly over the course of the month. By the second week of February, the pair was trading at €546. From April onwards, the pair took on momentum but with lesser steam. Towards the end of the month, on April 30, 2018, ETH/EUR was trading at €553. As of May 25, 2018, the pair had gained 6.06% against the euro, reaching a price of €512.
While Ethereum shares a positive correlation with Bitcoin and has the strongest relationship with the Great British Pound (GBP), its relationship with the euro is a weaker one. Recent studies, based on historical data, reveal a correlation factor of -0.03 for the pair, which is negligible. As such, ETH doesn’t seem to have a hedging quality against the euro, but would be beneficial for portfolio diversification, given that ETH has been performing well.
Factors that Influence the Euro and therefore the Ethereum/Euro pair
- Trade Balance: A current account deficit will mean more financial capital leaving the country than the amount entering it, which is bad for the currency. Germany and France are the two largest exporters in the Eurozone. So, traders should look into the trading accounts of these countries.
- 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.
- Prices and Inflation: CPI is the key measure of inflation in the Eurozone. However, 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 the monetary policies of the ECB.
- Cross Rate Effect: The EUR/USD rate is impacted by the non-dollar exchange rates, such as EUR/JPY. A weak euro may cause a decline in the EUR/JPY rate and lead to a falling EUR/USD.
- 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 exchange rates. The greater the interest rate differential in favour of Euribor against a currency pair, the more likely that the value of that currency pair would rise.
- Political Factors: The euro is affected by political instability, such as 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 rate too.
- Monetary Policy: The European Central Bank (ECB) and its decisions regarding interest rates significantly impact the euro. ECB 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.
In May 2018, a weak Eurozone PMI report led to poor performance of the EUR/USD pair. The services PMI dipped to 53.9 from 54, with manufacturing output declining to 54.5 from 56.2 and the overall manufacturing PMI to 55.5 from 56.2. However, Benoit Coeuré of the ECB saw no reason to extend QE that did not help the euro in any way. He also refrained from commenting on the prospective new Italian government and stressed that the EU treaties do not cancel debts of euro-area countries.
The Italian political crisis has made the companies wary of investing in the zone. They are not assuming the decline to be temporary. Adding to the woes is the increase in the French ILO unemployment rates, which unexpectedly rose to 9.2% in Q1, from 9.0% in the previous quarter.
A decline in the EUR/USD affects the ETH/EUR too. Investors should take these points into consideration while making trading decisions.