Banks abandon bullish forecasts for euro

The euro rose to the 2018 highs and began to lose its attractiveness in the eyes of investors. Strategists cancel bullish forecasts

On Wednesday, the single currency plunged to two-month lows. Investors were frightened by delays in vaccinations, which threaten the European economy with multi-billion dollar losses. Nomura International is exiting long positions on the euro, while Deutsche Bank believes that the currency may return to November levels. Options traders are also voting for a decline, with bearish sentiment hitting June highs.

Many strategists have tuned in to the growth of the single currency in 2021, believing that the recovery program will stimulate economic growth and at the same time support the exchange rate. However, the vaccination process in the region is slow compared to the UK and the US, which means that the economy faces new quarantines and a second consecutive recession. On the other hand, the dollar has revived over the past few months and gained strength amid rising government yields. bonds in anticipation of new incentives.


“The euro began to deviate from fair value early in the year when vaccination data hit the news,” said Steven Englander, head of foreign exchange research at Standard Chartered Bank. The analyst remains bullish on the euro but believes that vaccine problems create downside risks.


Last week, margin funds were cutting their long positions in the euro at a record pace since September, according to the CFTC. Meanwhile, the market is increasingly seeing bullish forecasts for the dollar. Nomura analysts note that the fall of the euro to $ 1.20 is not only a psychological reaction of the market. The bank buys foreign exchange options to hedge the risk of further declines.

Keith Yux, the senior currency strategist at Societe Generale, recommends that investors sell the common currency against the Norwegian and Swedish kronor, as well as against the Swiss franc if the euro / dollar falls below $ 1.20. George Saravelos of Deutsche Bank thinks that the euro will fall in price to $ 1.18 because Europe is in no hurry to open up the economy.


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