For the second time this month -- and for the second time in the past 20 years --U.S. dollars are worth more than euros. What do investors need to know, and what actions should they take to navigate this situation?
Here on Aug. 23, one euro is worth 99 U.S. 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: TradeStation
How did Europeans react to euro strength in 2008? A walk down New York's 5th Avenue told the tale. There, one could hear people speaking French, German, Italian and Portuguese. Some had flown over with empty suitcases and filled them with cheap American goods.
Now the shoe is on the other foot. If you're an American and you've ever wanted to visit Rome, Paris or Barcelona, now might be a good time.
How does this currency dynamic affect stocks? Businesses with significant revenue in Europe will feel the pain as they are earning a weak currency. Expect to hear companies complain about exchange rates when third-quarter results are reported.
Which U.S. stocks are most likely to suffer? I ran a scan of companies that do a significant portion of their business overseas and checked their charts to see how they're faring in this environment.
One name that has a concerning chart is Johnson & Johnson (JNJ) . According to Statista, last year nearly half of J&J's revenue came from outside the U.S.
Source: Statista
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 A-B-C-D pattern (red letters). This pattern projects the stock to the $160 area.
Source of stock charts: TradeStation
Online travel company Booking Holdings (BKNG) earns more than two-thirds of its revenue in Europe. This stock is down nearly 20% year to date.
Booking has 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 of this group belongs to information technology company DXC Technology (DXC) , which reached a one-year low on Monday. About 41% of DXC's sales originate in Europe.
It's not just Europe that investors need to watch. Last month, the Japanese yen reached a 20-day low against the greenback. On Monday, the British pound traded at its lowest level against the dollar in two years. Currency trends can continue for months or even years, so I'm not expecting a reversal anytime soon.
