Stock traders need to be aware of the currency as the euro crashes
For the second time this month – and for the second time in 20 years – US dollars are worth more than euros. What should investors know and what steps should they take to manage this situation?
Here, on August 23, one euro is worth 99 US cents (point B). In 2007, one euro was worth $1.60 (point A). At that time, the euro was 62% stronger against the dollar than it is today.
Source: Commercial Station
How did Europeans react to the strength of the euro in 2008? A stroll down New York’s 5th Avenue told the story. There you could hear people speaking French, German, Italian and Portuguese. Some had flown in with empty suitcases and filled them with cheap American goods.
Now the shoe is on the other foot. If you are American and have always wanted to visit Rome, Paris or Barcelona, now might be the right time.
How does this monetary dynamic affect equities? Companies with large revenues in Europe will feel the pain as they earn a weak currency. Expect to hear corporate complaints about exchange rates when third-quarter results are released.
Which US stocks are most likely to suffer? I’ve done an analysis of companies that do a significant portion of their business overseas and checked their charts to see how they’re doing in that environment.
Johnson & Johnson (JNJ) is a name that has an ominous picture. According to Statista, nearly half of J&J’s revenue last year came from outside the United States.
Starting in April, a pattern of lower highs (LH) and lower lows (LL) is clearly visible, an indication of a downtrend. JNJ has also formed a bearish ABCD pattern (red letters). This pattern projects the stock into the $160 area.
Source of stock charts: TradeStation
Online travel company Booking Holdings (BKNG) generates more than two-thirds of its revenue in Europe. This stock is down almost 20% since the start of the year.
The booking also formed a series of lower highs (LH) and lower lows (LL). The stock is trading well below its 200-day moving average (red) and is rapidly approaching its 50-day moving average (blue).
Perhaps the worst chart in this group belongs to information technology firm DXC Technology (DXC), which hit a one-year low on Monday. About 41% of DXC’s sales come from Europe.
It’s not just Europe that investors need to watch. Last month, the Japanese yen hit a 20-day low against the greenback. On Monday, the pound sterling traded at its lowest level against the dollar in two years. Currency trends can continue for months or even years, so I don’t expect a reversal any time soon.
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