EUR USD (1.2540) A €130 billion growth pact, worth one per cent of eurozone GDP, was the highlight of the Rome summit. Germany and other creditor nations, however, continue to oppose sovereign bond buying by the pan-European rescue vehicles and German officials are even massaging downwards expectations for the end-of-the-month EU summit. All this has left Italy’s technocrat Prime Minister Mario Monti bemoaning the policy status quo and categorising the inaction as anti-growth. He warned once again that large parts of the eurozone will continue to pay very high interest rates. Meanwhile, the economic data releases remain bleak: depressed Chinese PMI; a 13-year low Belgian business confidence; and record-low Italian business confidence. This deterioration means, barring a positive policy surprise, risk aversion might not reverse any time soon.
The CFTC data ending June 19 shows a large reduction of net short euro positions. This data dovetails with the recent decline in threemonth implied volatility. These developments confirm our intuitive contention that euro cash positions have been sold and thus investors have less need for derivative hedges. Thus, the persistent risk aversion might not necessarily mean the euro has to fall further. For now, it moves within a 1.2435 – 1.2740 congestion area.
Click here to read the full report: Daily Forex 06.25.12
Deutsche Bank