Euro Longs at Record Level Suggest a Bullish Trend

Though euro is falling against US dollar towards a 3-year’s low, fund managers are stepping up their bullish bets on the euro.

Latest statistics from US Commodity Futures Trading Commission(CFTC) showed that net longs in EUR/USD held by asset management firms hit a record high last week, with euro falling to its lowest sine April, 2017. People are increasingly worried that Germany may sink into recession amid the novel coronavirus outbreak, while the market is also concerned over uncertainties brought by Chancellor Merkel’s successor. Moreover, Europe Central Bank had appeared dovish in its policies. All these factors appear to be against the favour of euro long-position holders.

In terms of interest rate, the market estimation is Eurozone will continue to hold interest rate. Outside the Eurozone, US announced that further quantitative easing will be implemented if domestic economy shows signs of decline, which indicates that the Federal Reserve still worries about the economy’s stability in the short term. Market estimates there’s about 70% possibility that the Fed will make at least one rate cut this September. We expect the Federal reserve to cut interest rate in the second half of this year as US economy move from a steady range towards decline, which can be a potential bullish factor for EUR’s long positions.

A currency pair whose trend has been particularly worth-noting is EUR/CHF, which fell to the lowest level since 2015 last week, indicating how fierce the euro has been sold off.

In conclusion, euro may be slumping too much, and the growing bullish bets on euro may imply that it’s a good chance for dip-buying in the medium term.