On January 22nd, the European Central Bank announced the start of its Quantitative Easing (QE) program that will involve a larger than expected 60 billion Euro asset purchase per month. The Fidelity Europe Fund (FIEUX) responded with a rally, but it has not yet cleared the resistance level (see blue line on the chart):
At the same time, the Euro continued to drop against the dollar, which explains why European stocks are less attractive in U.S. Dollar terms:
The picture is completely different if we look at European equities in Euro terms. This chart shows a very bullish break out:
Both weakening economic conditions outside of the U.S. and geopolitical risks have caused the dollar to strengthen against all major currencies since May, including the Euro:
The weak Euro coupled with renewed fears about recession in the Eurozone have negatively impacted European equities. Prudent investors may want to avoid investing in European equity markets until the downtrend reverses.
We highlighted the Fidelity Nordic Fund (FNORX, last change: 2.38%) as the strongest-performing Fidelity international fund in previous blog posts. FNORX has returned 14.34% in the last three-months, but now it is in an overbought condition. We wouldn’t be surprised to see a correction in the next few days in the Northern European markets. Consequently, this may be a good opportunity to take gains.