In today’s market, there are two main currency blocs: those that are rallying (rising) and those that are falling (or downtrending). A rally is when one country’s currency goes up while others in the group remain stable or even drop slightly. An example of this would be if Germany’s currency was rising more quickly than France’s.

A downtrend is exactly what it sounds like: all currencies in the group are dropping in value. This is typically due to the fact that each nation in the group has too much of the same money as their neighbors. For instance, if Italy has plenty of Euros, then its citizens will spend them instead of buying Italian made products.

The euro, however, does not have such differences. All countries in the union use the same unit of currency — the Euro! The reason why some nations gain strength from using the common currency is because they do not need to worry about other national currencies fluctuating when paying for things.

This article will discuss which ways the euro is trending. You may also learn how to predict where the euro will go next by looking at past trends and patterns.

Disclaimer: These theories should be used with caution.

Why is the euro trending lower?

The market has been trading with a lot of uncertainty surrounding how Europe will handle its debt crisis. This includes whether they will ask for more help from other countries, what kind of aid those governments would offer, and if there can even be an agreement among all European nations to take action or not.

The markets have also been watching as some European nations struggle to meet their financial obligations each month. Germany, one of the strongest economies in the world, has seen its stock market drop due to worries about whether it can continue to lend money to weaker members.

Another major factor is that many investors are starting to question the effectiveness of having one currency instead of several. If people were able to buy products made abroad using different currencies, why should they still use the same one at home?

That means fewer tourists are spending money in foreign lands, which helps support revenue for businesses back home. And since most goods are imported, this too puts pressure on local production and sale.

European stocks are falling

Over the past week, major European stock markets have been in a slump. On Friday, Germany’s DAX index closed down 2% or more and France’s CAC 40 fell 1%. The drop comes after both of those countries’ finance ministers agreed to start budget talks with Italy at the G7 meeting last weekend.

The Italian government has run out of money and is looking for loans from international lenders like the ECB (European Central Bank). Since these nations will be having budgetary discussions, it is seen as a form of threat. This creates uncertainty about whether they will get their next loan payment.

This fear spreads among investors because they don’t know how much money each nation will receive. Some believe that if Italy doesn’t make its payments, there could be another credit downgrade for Rome, which would hurt investor confidence even further.

A credit rating downgrade can cost billions of dollars in debt repayments for governments and corporations. It also makes financial products such as mortgages and car loans riskier for borrowers, which can push up borrowing costs for people.

For example, mortgage-backed securities and other risky debts contain warranties about what a country will pay back, so sellers of these investments need to account for potential losses when calculating profits.

Since investors worry about where Italy might get its money, they keep buying bonds and currencies related to Italy, including the euro.

Will the euro get stronger?

The strength of the dollar as world currency is something we have seen before in recent memory. Back then, it was paired with almost constant war and uncertainty around the globe.

Since World War II, there has only been one other time when the dollar had this kind of dominance. That was from 1932 to 1944, during what many call the Great Depression.

In those years, the United States was not a major player in global affairs. It lacked the resources to be so, and thus, it lost influence as a result.

This makes sense because back then, the main currencies were either gold or foreign countries’ money. Neither the US nor any other country invested heavily in dollars at that time.

With no strong backing for the greenback, people traded it out and used alternative currencies instead. This made the dollar less attractive than it is today.

At times, some experts say the dollar even became too popular, which hurt its image. People began buying and investing in the currency rather than using it for transactions.

That led to more losses for investors who owned too much of the dollar. In fact, several nations actively tried to take away America’s status as sole issuer of the paper version of the currency!

All of these factors helped make the dollar weaker during the early 1930s. Since then, though, it has regained most of its luster.

When will we see a euro rebound?

There are two main reasons why people call for a strong dollar or even a weak dollar. One is a supply-demand situation in currencies, where there’s too much money chasing a limited amount of currency.

Currencies get crowded when investors pour capital into an asset class that yields very little return. For example, if everyone was investing in stocks, they would win big because stock markets always go up!

A strong dollar is needed to keep pressure on other currencies such as the Swiss franc and Japanese yen, both of which have been struggling lately. The more dollars that exist relative to these weaker counterparts, the harder it is to buy their products overseas.

The second reason comes down to what nations owe each other in terms of debt. If countries outside of the eurozone like Japan run into trouble, then the ECB (the European Central Bank) could start buying bonds from those governments, thus lowering the value of their respective national currencies.

In turn, this makes imports costlier and goods abroad less affordable, creating additional pressures on spending and investment within those economies. All of this can add up to slower growth and recession, at least initially.

But you need a lot of euros before they make any difference, and Europe doesn’t seem willing to cooperate on providing them. It looks like Germany isn’t going to pay its fair share of EU funding…yet.

Where will the euro go next?

The most popular theory about where the euro goes from here is referred to as “Eurozone debt crisis breakout.” This theory predicts that Europe will need to take more decisive action to contain its sovereign-debt crises, which could lead to even bigger problems for the eurozone as a whole.

If this happens, then the currency of one or many member states may break down, so investors would be left with no option but to bet against the country’s currency.

That wouldn’t make sense unless you were betting heavily in favor of that nation’s bonds, however. (And even if you were, it still wouldn’t be a good idea.)

Instead, investment money flows into whatever currency is seen as the safest — usually the dollar, the British pound, and less frequently, the Swiss franc.

But there’s little reason to expect the greenback to remain stable forever. And when it does crumble, the euros will look awfully attractive.

Will the euro get back to its previous level?

The most recent drop in the value of the euro comes as many analysts are predicting that the currency will eventually bounce back up. Some predict that it could even reach parity with the US dollar once again!

This seems like a very big assumption, but it is one that makes sense.

The reason why is because the Swiss National Bank (the body that prints money for Switzerland) has been keeping their franc stable by buying or selling euros.

By doing this, they have made the price of the euro go down. As mentioned before, when the market thinks there are more euros available, then it tends to buy them up.

If the SNB starts letting some of their euros go, then people will start investing in the currency rising against other currencies. This would cause the euro to weaken further.

Another factor at play here is how much debt individual countries in Europe owe others. For example, if Italy owes lots of euros to France, then France can demand those debts from Italy.

Will the euro ever get back to its previous level?

The short answer is no, it will not! The long answer is slightly more complicated than that, but still pretty simple in reality.

The EUR/USD exchange rate has been trending lower for quite some time now. Since early October of last year, when it was around 1.30 USD per euro, it has dropped about 0.90 USD or 40%!

That drop has come even though ECB President Mario Draghi made repeated statements indicating that he would do whatever it took to keep the currency strong.

He also indicated several times that his goal was price stability with inflation being the main focus.

Since those comments were made, prices have been rising consistently in most EU countries. Inflation is currently running at 2%. This includes food, medicine and other items, which are all important components of daily life.

For this reason, many analysts believe that the pressure on the EUR/USD exchange rate will only increase, making it harder and longer for investors to make money off the greenback.

Will the euro ever get back to its previous level?

The short answer is no, it will not! This may come as a surprise to some since many people think that once the dollar drops low enough, the down selection in currencies will win out and the euro will rise.

This isn’t necessarily true though because even after all of this turmoil, there are still strong fundamentals for the euro.

The underlying strength of the EU comes from three main factors: trade, investment, and savings.