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Eurozone Stock Markets Could Rally Higher



September 29, 2017 – Comments (0)

So far this year, the stock market have been positive for most investors around the world and recent developments in the Eurozone suggest that this story is not yet over.  Specifically, the iShares MSCI Eurozone ETF (EZU) now appears to be on the verge of a major breakout.  This is a significant event because the Euro area has been something of a laggard within the global stock context, and it is now looking as though these trends are about to turn.

Euro Stock ETFs 

The iShares MSCI Eurozone ETF is generally a strong indicator of stock developments in the region, and we are now seeing the ETF coming very close to a price break through historical resistance levels at 44.20.  According to market data compiled by Euroclear Group, this is essentially a valuation level that has not been seen since the middle of 2014 and so it would be a strong suggestion that we are ready to break out in terms of the next trend direction in European stocks.

There are a few different reasons that could potentially explain the causes behind the latest rallies in Euro area stocks.  First is the fact that we are starting to come to an end of the Brexit aftermath, which is something that added a great deal of stock market uncertainty for companies with exposure to the Eurozone.  There are still details that have yet to receive clarification but for the most part we do not expect any major surprises with respect to how the UK’s break from the rest of the European Union is likely to influence both economies.

German Elections 

We have had a few additional events which have also impacted the outlook on European stocks. Recent elections in Germany had the potential to jar markets if there had been any reason to believe that Angela Merkel would not be able to retain her position of authority, as she has had a great deal of influence on the broader policy directions that have been promoted by the European Central Bank.  

That is not to say that she made any direct policy maneuverings herself as there is a broad distance between her position and the authority of the ECB.  But now that we know that Merkel will retain her post, we have a better idea of how Germany will position itself (and made its presence felt) within the Eurozone economic body.

Removing Uncertainty 

For the most part, the removal of uncertainty can explain most of the upside trajectory that we have seen in instruments like EZU.  This does brighten the outlook and will help market analysts to make a more bullish case for the ETF as we move into trading activity for next year.  The Euro area has been weaker than many of the other economic regions (i.e. the United States) but it is looking as though some of the key stock instruments for the region might be ready to take a bullish turn to the upside.

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