Friday, January 16, 2015

Does 2015 Present a Perfect Travel Opportunity?

The Euro versus the US Dollar plunged to a 10-year low today and all signs indicate it will continue lower if the ECB implements some form of easing as they are expected to do next week.  We've seen multi-year support in the 1.20 range, however today it has recently driven through that support and today dove under the 1.15 mark with no signs of looking up.  Given global weakness and the prospects for some form of QE coming out of the ECB, there's no end to this trend in sight.

USD to EUR 10-Year Chart

The exchange rate on the Euro alone is enough to entice travelers to look at European vacations in 2015.  This is the best exchange rate we've seen for the US consumer in well over a decade.  Making it even more attractive now, though, is the decline in oil prices that are helping keep airline ticket prices in check.  Some forecasts suggest an overall decline in ticket prices for 2015, at least according to Expedia. 

This is great news for traders in several sectors, especially if overall prices in the US remain low, gas prices remain low, and consumer confidence increases.  We've already discussed Alcoa's views regarding overall growth in the airline industry, and what we see in the exchange rate supports that view.  The airlines themselves should benefit since demand from increased tourism will offset any downward pressure on price, thus increasing their margin when combined with falling fuel prices. 

With increased tourism and demand for air travel come increased aircraft orders for the major carriers.  There's also the potential for increased maintenance requirements on the aircraft, so the suppliers of parts will benefit.  Those airlines that have yet to squeeze passengers into every available nook and cranny will be placing orders to providers like B/E Aerospace for more seats, thinner bulkheads, etc.

Looking a bit further into the future, we see potential with Cuba as well.  It was announced today that some of the travel restrictions there were lifted, making it easier to travel to Cuba without State Department approval provided the reason fits into twelve relatively broad categories.  Unfortunately, tourism isn't one of them, but the writing is on the wall, there.  I will be surprised if tourism isn't added to the list during the current presidential term.  Cuba as a tourist resort provides a host of trading opportunities, so we'll be keeping a very close eye on political developments on that front.

For now, I'm watching the forward guidance provided by key players in the Materials, and Industrials.  Consumer Discretionary will also provide a clue as to where the potential traveler is spending their money and where we think that is heading.  The bottom line is that, even those of us that don't play FOREX, we have some excellent equity trading opportunities coming out of the falling Euro.  Keep an eye on forward guidance in these sectors and trade accordingly.

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