Euro Bear Trade looks Overcrowded

According to the data of the Bank of New York Mellon, investors’ bearish sentiment towards the euro has exceeded the level of previous years due to concerns about the deteriorating economic situation and increasing geopolitical risks in Europe. At that time, the impact of COVID-19 was causing serious damage around the world.

 As evidence of the increasing use of the euro to finance trading positions, the data indicated that hedge funds were shorting the euro on an unprecedented scale as the pessimism about the euro intensified. In the London trading market, the euro has reached 1:1 against the US dollar, which is the lowest exchange rate in 20 years.

The euro was at parity with the US dollar in 2002. It was the first year that the euro officially entered the circulation of Europe. The domestic currencies of the eurozone member countries completely withdrew from the circulation field, and the coexistence period of the euro and the currencies of the member countries ended.

 Market analysis believes that the main reason for the continuous decline of the euro is that the European energy crisis is getting worse, and the European economic recession is expected to strengthen. Inflation and economic prospects in Germany, which is one of Europe’s largest economies, also cast a shadow on the rebound of the euro exchange rate.

The euro has become a one-way downward trade at this time. Because of rising prices and uncertain economic prospects, consumers are becoming more cautious in spending, and demand is now weakening. And in the coming months, the economic downturn seems to continue.

 If there is no clear evidence to the contrary, the current euro price trend is fundamentally reasonable. However, Graham Secker, chief European equity strategist of Morgan Stanley, said that the weakness of the euro may boost European enterprises before the upcoming second quarter earnings season.

Credits: Bloomberg