EUR USD (1.3185) For some investors the latest EU summit disappointed in as much as it failed to top the €500bn ESM with more resources. To the extent that the summit delivered a ‘fiscal compact’ which can be a basis for further discussions on expanding the rescue vehicles, it is seen in a positive light. Either way, the summit headlines didn’t impact the euro’s course in a meaningful way yesterday; it still traded within the range set during the previous day. The backdrop of the record short positions in the IMM also created a salient backdrop for the short-term traders. The IMM data, of course, indicates that some investors are still hoping to profit from a fall in the euro. The popular opinion, at least in the hedge fund community, seems to be that 2012 will be decisive for the euro’s future: either the politicians would resolve the debt crisis or the eurozone will cease to exist in its present form. In both scenarios, however, these investors apparently see the euro declining from its current level – a relative moderate decline in the first case, or a sharper slide in the second. These short investors have apparently not let a 600-pip recovery from the year low dissuade them from view.
Our bullish view remains intact with price target at 1.3280/90. This hurdle is also the trigger point for additional near-term gains. The downside risk-limit remains at 1.3075.
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Deutsche Bank