EUR/USD: from Greece to QE
During the entire February the euro rate was rather stable. In the past 2 months, however, German bond yields became negative. EUR/USD has left the 1.1260/1.1535 range and aimed for 2015 lows in the 1.1100 area. Stronger pressure on the single currency means that the general downtrend is resuming. The next target of the bears is at 1.1000.
Greece got a 4-month bailout extension and left the limelight. However, EUR/USD didn’t feel much of the optimism as the talk about the European quantitative easing program (QE) has returned to the attention spot. This is a bearish factor for the euro.
Within this program the ECB will buy 60 billion euro in the European bonds per month until Sept. 2016. To be fare, the euro area’s QE raises many questions. Will there be enough bonds for the ECB to buy? After all, the regulator won’t buy any securities, only those of high quality. Will the QE help to encourage GDP and inflation growth? How much of QE is already priced in the euro’s exchange rate? A time will pass before we’ll know the answers to these questions. For now we should view the European QE as a contrary to the Fed’s plans to start raising rates. This means that the euro will get sold on the attempts to increase.
The main risk for such scenario is that the short positions on euro are now close to the record highs. According to the CFTC, net shorts exceed 100K for 30 weeks in a row. The longest periods of such big EUR shorts before were only 23 or 16 weeks long. Still, this doesn’t mean that the selling positions on the single currency can increase more or stay high. At the same time, you should be aware of the short covering risk and take it into account while trading and setting stop orders.