Week In FX Europe - Is It Time To Admit Euro Defeat?

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Includes: DBV, DRR, ERO, EUFX, EUO, FORX, FXE, UDN, UDNT, ULE, URR, USDU, UUP, UUPT
by: Dean Popplewell

The dollar is supposed to be king - that's what many had been hoping especially with a "hawkish" Fed and a "dovish" ECB running the show. Interest rate differentials are suppose to pull the "mighty" dollar higher against the 18-member single currency. If you ask a EUR bear, especially this week, you probably get the most frustrated of responses - they have been waiting patiently for most of this year to reap some reward from their "short" EUR positions. It's not happening anytime soon, especially now after the ECB's reaction and rhetoric of this week's monetary meet-up.

The ECB managed to "wrong foot" the markets that have been waiting for a response to the Eurozone's low inflation problem. With rates on hold at +0.25% and Euro policy makers unlikely to provide any monetary stimulus soon, trades that been wagered on a looser policy are bleeding and will only ever support the EUR in the short to medium term. Betting against the single unit looks wrong and has the bleakest of bears nearly raising both their arms in defeat. Trading above the psychological €1.39 pre-NFP ($1.93 U.S.) on Friday equaled levels last seen in October 2011. Most of the negative trades have been strapped on assuming that the ECB was going to counter their low inflation problem with one of their controversial policies - negative deposit rates or QE. The upbeat message that followed the ECB rate decision from Draghi at his regular press conference post monetary meet would suggest that neither of the tools would be deployed anytime soon or if ever. Now the bears have to wait and gauge the pullback from Friday's positive NFP report. If the USD does not get aggressively brought outright then the EUR bears could be in a heap of trouble - €1.40 and change looks so near.

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