Hedge Funds Cut Bullish Euro Bets at Fastest Pace Since February

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Hedge funds are trimming bullish euro bets at the fastest pace in eight months as a resurgence of coronavirus infections in Europe damps the growth outlook.

Leveraged funds reduced net long euro positions by a total of 20,870 contracts in the two weeks ended Oct. 13, according to data from the Commodity Futures Trading Commission on futures and options.

A renewed surge in infections has undercut the euro’s positive momentum as traders speculate that policy makers may ease again to support growth. European Central Bank President Christine Lagarde has warned that the drag on services is particularly worrying, given that the sector accounts for three quarters of the jobs in the region.

Hedge Funds Cut Bullish Euro Bets at Fastest Pace Since February

“The euro has a list of selling catalysts,” said Hideki Shibata, senior rates and currencies strategist at Tokai Tokyo Research Institute Co. “Movement restrictions will inflict a big damage on the economy. Speculation of additional monetary easing is growing and bond yields have slid sharply.”

Europe’s common currency has fallen about 2.5% since rallying to $1.2011, the highest in over two years, in early September. It traded around $1.17 on Monday and analysts in a Bloomberg survey see it reaching $1.18 in the fourth quarter.

Hedge Funds Cut Bullish Euro Bets at Fastest Pace Since February

Still, leveraged funds are unlikely to turn net euro sellers despite all the negatives, said Shibata.

“The dollar is at the receiving end of euro selling, but negative real yields for the greenback are discouraging investors from buying the currency aggressively,” he said.

©2020 Bloomberg L.P.

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