In April 2015, Mark Gilbert, a Bloomberg Colounmist, had run a story – ‘Everyone Hates the Euro’. Mark explained that how most market participants were accumulating short positions against Euro. Net short position in Euro spiked 226K. Back then, US Fed had starting preparing the markets for a rate hike and ECB had just started its QE programme. Diverging monetary policy stance was a major theme, wherein traders were more comfortable shorting Euro and buying below parity (EUR/USD=1) out of the money put options. Interestingly, Central bankers, arguably passive participant, also rebalanced their FX portfolio by shifting exposure from Euro to USD.
Fast forward, 22 Monetary policy meetings each of ECB and FED, fortunes have changed for EURO. US FED has raised interest rates multiple times to 1.50% and started shrinking its balance sheet. ECB is still buying bonds to support the economy. But for FX markets, it’s not about what central banks have done, it’s about how much monetary tightening they can do from here on. The ECB has much more in store than FED hence, traders have started to accumulate long positions in EURO.
Outlook: The EUR/USD pair had given a break-out from triangular formation @ 1.1890 levels. The EUR/USD pair has immediate support near 1.1930 levels and next support zone is close to 1.1880-1.1900 range. The EUR/USD pair can be bought on dips for a target of 1.2060 levels.
Source:
Date of Publish- 10 Jan 2018
