| Major «bet» on a weaker euro |
| 01.02.12 11:57 | |
|
The euro has lost around 9% of its value against the US dollar since October 2011. The worsening of the European debt crisis and doubts over the stability of many European banks have been keeping up the pressure on the single currency. Sentiment vis-à-vis the eurozone remains negative in the new year and the euro has little credit on the markets. Market players have built up very large short positions on this currency. Speculators therefore have an interest in seeing the pressure on the euro persist and in the Eurozone continuing to make negative headlines. Europe faces some difficult weeks At the beginning of January, France issued longdated bonds worth around 8 billion euros. The country had no great problems placing the issue among investors and the bonds were issued at the yields prevailing on the date in question. So nothing out of the ordinary, one might think. However, the financial media sensationalized the fact that the yield was a few basis points higher than at the time of the last issue. This illustrates one of the problems the eurozone faces this year. Hardly a week will pass by without one of the various countries having to issue new bonds, thus providing the media with repeated opportunities to whip up fears. Moreover, if Greece is to avoid collapse, it will need to receive the next tranche of its bail-out funds by March at the latest. In the run-up to this deadline, the country will be subjected to a further test of resilience and an intensive debate over whether it should remain in the euro. Thus Greece will remain an abundant source of bad news. Futures market in a state of imbalance The number of open contracts held by non-commercial investors in euro/US dollar futures on the Chicago Mercantile Exchange (CME) is a good indicator of the positioning of the currency market as a whole. On the CME, the number of outstanding short contracts – i.e. contracts that stand to benefit from a slide in the value of the euro – held by this client group exceeds the number of long contracts – those speculating on a rise in the value of the EUR – by 171,000. The net positioning to the detriment of the euro has never been this high since the currency’s inception. As long as the trend toward a lower euro persists, investors will make money on these positions. If the euro makes gains against the dollar, they will lose and the short positions will be wound up quickly as in 2010. A technical countermovement in favour of the euro is therefore a possibility once more positive reports start coming out of the Eurozone again. Europe benefits from a weak euro The ECB and the European economy are unlikely to be displeased by the euro’s current weakness. For Germany in particular – as the eurozone’s driving force – and for the German export sector, a weaker euro is a source of positive impetus. This is something Europe could do with. It gives the battered economy support. Euro will temporarily remain under pressure We have downgraded our short-term forecast for the euro as we expect the negative debate over the eurozone to continue. However, we have left our forecast for the next 12 months unchanged. The European economy will benefit from a stronger US economy and will not perform as badly as current expectations suggest. Dr. Thomas Stucki is the CIO and a member of the senior management of Hyposwiss Private Bank. Mr. Stucki holds a doctorate degree in economics from the University of Bern and is a CFA Charterholder. He manages the Investment Center of Hyposwiss Private Bank with around 30 staff. Thomas Stucki is responsible for the asset allocation of client mandates of CHF 3.4 billion. In his previous job, he was Head of Asset Management at the Swiss National Bank. Hyposwiss Private Bank Ltd. Hyposwiss Private Bank is a Swiss private bank with 120 years experience. We offer our private customers a wide range of services in the areas of private asset planning and asset management. Specialised in individual asset management, we are the private banking competence centre of the St.Galler Kantonalbank Group. Hyposwiss Private Bank Ltd. currently has 162 staff and manages customer assets of 9.6 billion Swiss francs. |
| < Prev | Next > |
|---|