EUR/USD has been sinking as the markets continued to analyze the new political climate following the elections in France and Greece over the last weekend. Forex market participants fear that Greece will reject an existing international bailout and potentially leave the euro prompted the selling across markets. The leader of Greece’s Left Coalition party said the country’s commitment to European Union/International Monetary Fund rescue deal had become null and void. If Greece exits the euro bloc, it will be their own decision, which may come if we see the change of leaders there. The euro is going to be under pressure for some time for sure. On the other hand, if Greece does not stick to the aid package terms, it could run out of money as soon as next month.
The threat of a Franco-German split over policies to tackle the region’s debt crisis loomed after anti-austerity Socialist Francois Hollande was elected French president. Socialist French President-elect Francois Hollande has advocated an approach to tackling the debt crisis centered more on growth, which may create tensions with Germany’s insistence on fiscal austerity. This is dragging the situation out even longer and makes it less likely that the progress that has already been made will continue. The whole global economy is sluggish recently and forex market analysts expect that to remain the case. This could boost the demand for safe-haven currencies such as the U.S. dollar and Japanese yen. Of course, austerity alone can’t help the economic situation with unemployment rising in Europe, but investors are concerned that the austerity pact engineered by Sarkozy and Merkel could crumble.
Data from the Commodity Futures Trading Commission showed that speculative traders on the Chicago Mercantile Exchange aggressively bet on more EUR loses.
Speculative traders increased their open short EUR position by 32% from a weak earlier to reach a net of $23.4 billion as of Tuesday, according to the CFTC’s weekly commitment of traders report. In doing so, they joined the list of major market players expecting the single currency to fall vs. the US dollar in the short term amid the rising uncertainties in Europe. Examples for those on the EUR bears’ list are Credit Suisse which sees the pair trading at 1.25 in 3 months, Morgan Stanley which expects the pair to touch 1.28 by the end of June, and Nomura which is holding its 2 weeks short EUR/USD position targeting 1.27 in the near term.
Traders also added heavily to their open long USD position as they increased their bets on the dollar rise by 62% from a week earlier to reach a net of $20.5 billion, according to the report.
Data released by CFTC also showed that traders increased their open short CHF position by 13% from a week earlier to reach a net of $2.2 billion. They also decreased their open short JPY position by 18% to reach a net of $6.4 billion, the data showed.