Euro Remains Largely Steady Against Major Currencies As Bets Against The Currency Edge Up
This year, the Euro celebrates 20 years since its commissioning. However, the turmoil that is underway within the politics of the Eurozone is threatening the existence and strength of the currency. Further, the region is facing bleak economic growth as a number of member states battle recession. Nonetheless, the Euro has remained strong and is holding up within a good range against major rivals.
To be sure, the EUR/USD pair started this week by rallying 0.20% to 1.1238 as the US dollar faces both domestic and international pressure. Notably, the US economy has produced rather weak data in the last few months, and that has dampened investor confidence in the strength of the greenback. Further, the US is involved in major disputes with other economic giants where there is a risk of fallout on a global scale.
EUR faces strong headwinds
In particular, the US and China are still locked in a tussle over key trade issues including a huge trade imbalance. As such, the US threatened a slew of tariff barriers to Chinese imports. Nonetheless, representatives of the economic giants are in ongoing negotiations to try and iron out the issues amicably.
In addition, there is a likelihood of another feud between the US and the EU over trade. Coupled with subdued global economic growth predicted by the IMF, there is a reason for investors to fear risky assets priced in dollars.
On its part, the EUR is facing strong headwinds from weak data reported by key players in the region like Germany. For starters, Germany has faced a sharp drop in factory orders in the manufacturing sector. Together with shaky global growth, the country is beginning to see its trade surplus fail to beat estimates.
Despite the challenges, one cannot say that there is a complete lack of risk appetite in the market. In particular, investors are looking forward to Wednesday’s policy meeting by the ECB officials. Interestingly, the investors are looking out for positive news which might fuel a rally. One of the issues the ECB must address is the danger posed by the possibility of a wrangle with the US.
Short positions against the EUR at a two year high
The British Pound remains strong against the EUR despite the twists in the Brexit drama. Interestingly, investors seem to be betting on the possibility of a soft Brexit. Notably, the EU has an upcoming summit which will deliberate on British PM’s request to extend the Brexit deadline further.
Meanwhile, it is becoming increasingly clear that the market expects the Euro to plunge. Notably, the number of short positions on the currency edged up by $2.6 billion in the week ended April 2. As such, the total short positions are now worth $13.9 billion. Further, Bloomberg data shows that the contracts for net short positions on the Chicago Mercantile Exchange are 99,184. This is level last recorded in 2016.
This implies that, in addition to weak data from the Eurozone and a possible escalation of the EU-US trade war, Brexit will have a huge impact on the direction of the common currency.