Is The Euro Moving Higher Or Lower? And What Should You Do About It?

The euro has fallen staggeringly lower against the dollar in recent weeks as the divergent policies of the Federal Reserve and the European Central Bank have helped move the two currencies in opposite directions.

However, with the euro beginning the week at $1.0814, many are wondering what's next for the common currency.

Further To Fall

According to Goldman Sachs Group Inc GS, the currency will fall to $0.80 by the end of 2017. This scenario assumes that the U.S. is planning to increase interest rates alongside a steadily recovering economy and that the ECB will maintain a large scale QE program.

Related Link: Why Biotech, Copper And Euro ETFs Should Be Key This Week

Betting On A Lower Euro

For those subscribing to Goldman Sachs' forecast, there are many deals to be had within European markets. There are some investors who believe that now is the time to buy eurozone government bonds, despite the fact that more than a third are trading with a negative yield. However, with the ECB's promise to buy €60 billion worth of government bonds per month through September 2016, many see an opportunity to resell at a higher price.

Others are investing in companies like Priceline Group Inc PCLN in hopes that the company's travel planning activity will rise as more and more tourists flock to Europe due to favorable exchange rates. Priceline owns Netherlands-based Booking.com, which provides travelers with accommodation options in over 200 different countries and is likely to see a boost as European vacations become more appealing to foreigners.

Don't Discount The Bulls

While current trends suggest a downward trajectory for the common currency, that isn't the only possible outcome. HSBC Holdings plc (ADR) HSBC raised its euro forecast last week, saying it expects to see the common currency trade at $1.10 by the end of 2016. In HSBC's view, the dollar has risen too sharply and the implications for the U.S. economy will have an effect on the Fed's policy aims.

The dollar's growth has put a damper on commodity prices, which in turn has stifled inflation in the U.S. The Fed may be hesitant about a rate rise with inflation under pressure, not to mention the negative impact a stronger dollar has had on multinationals' profits, something that could affect job growth.

Betting On A Euro Recovery

This would be good news for multinationals like Microsoft Corporation MSFT and Procter & Gamble Co PG, who have said their sales and profits are taking a hammering from exchange rate fluctuations.

U.S. automakers like General Motors Company GM and Ford Motor Company F would also be relieved to see the dollar back down from its rally, as their products have become less competitive against foreign companies who are able to offer better pricing and dealership incentives.