19 Jan 2015
Euro an unwanted currency, prospects for recovery 'slim'
FXStreet (Bali) - We should not expect much demand for Euros at the start of the week, barring any hiccup on Tuesday's ZEW survey and/or A LIGHT unwinding of shorts heading into the ECB, with a change in the short term specs community mindset to hold the single currency now subject to Thursday's ECB monetary policy announcement.
The EUR specs market is a very crowded short trade, however, with the unprecedented measures taken by the ECB to impose negative deposit rates #and with a full-blown QE program looking like a done deal, is hard to argue against such inflated positions. Besides, the buy-master of Euros in recent times - the SNB - is no longer willing to do so after last week's shocking EUR/CHF 1.20 protective cap removal. On top of all that, the general election in Greece runs the risk of seeing anti-bailout Syriza claim victory, as the lead margin in the polls indicate, which means the financial mess in Europe could worsen.
While the picture looks certainly uninspiring going forward, not all is lost for the interest of Euro bulls in the short term. The market appears now to be pricing in an aggressive and immediate QE program by the ECB, so there risk of disappointment exist should details of an ECB QE program about to be revealed came more measured-than-expected.
As a reminder, the latest follow through in Euro sales from 1.1750 last week post SNB 'shocker' served the purpose of expressing the assumption that a more aggressive QE is about to be delivered, and that the SNB would have found very hard to deal with in order to maintain the minimum 1.20 EURCHF peg, thus the early exit of the peg prior to QE. Until the ECB outcome, the Euro/US Dollar should be contained by 1.1650/1.17 on the upside, while risk of further declines can not be discarded, as the USD continuous to be immensely more attractive than the Euro, and with real money outflows from Europe not stopping.
The EUR specs market is a very crowded short trade, however, with the unprecedented measures taken by the ECB to impose negative deposit rates #and with a full-blown QE program looking like a done deal, is hard to argue against such inflated positions. Besides, the buy-master of Euros in recent times - the SNB - is no longer willing to do so after last week's shocking EUR/CHF 1.20 protective cap removal. On top of all that, the general election in Greece runs the risk of seeing anti-bailout Syriza claim victory, as the lead margin in the polls indicate, which means the financial mess in Europe could worsen.
While the picture looks certainly uninspiring going forward, not all is lost for the interest of Euro bulls in the short term. The market appears now to be pricing in an aggressive and immediate QE program by the ECB, so there risk of disappointment exist should details of an ECB QE program about to be revealed came more measured-than-expected.
As a reminder, the latest follow through in Euro sales from 1.1750 last week post SNB 'shocker' served the purpose of expressing the assumption that a more aggressive QE is about to be delivered, and that the SNB would have found very hard to deal with in order to maintain the minimum 1.20 EURCHF peg, thus the early exit of the peg prior to QE. Until the ECB outcome, the Euro/US Dollar should be contained by 1.1650/1.17 on the upside, while risk of further declines can not be discarded, as the USD continuous to be immensely more attractive than the Euro, and with real money outflows from Europe not stopping.