Euro Dollar Could Fall to 1.28
Written by Antonio Sousa, Chief Strategist
Dailyfx.com provides free news, trading resources, and market analysis to the trading community.
A sharp contraction of economic activity in the euro zone is likely to pressure the ECB to cut rates and lead to a significant deterioration of interest rate differentials in favor of the U.S. dollar going forward.
European Banks Have Written Off More than 1/3 of Losses Related to the U.S. subprime market
The U.S. dollar has been one of the main beneficiaries of the lack of confidence that characterizes the current global financial system and I expect more EUR/USD weakness going forward on speculation the ECB will have to cut interest rates to promote growth as the euro area economy slows down and inflationary pressures ease. Indeed, European banks have written off $229 billion out of a global total of $588 billion in losses related the collapse of the U.S. subprime market and economy activity in the euro area has been close to recessionary levels. I have been short EUR/USD since 1.47 and I expect the euro to fall to 1.28 once investors start looking beyond the short term implications of the recent actions taken by EU policy leaders to inject liquidity in the European banking system.
Sentiment Analysis
The ratio of long to short positions in the EURUSD stands at 1.32 as nearly 57% of traders are long, according to the FXCM SSI which measures the positioning of thousands of retail traders. Last week, the ratio was at 1.20 as 55% of open positions were long. Retail traders have been buying the EURUSD and long positions are up by 23.9% since last week. The SSI is a contrarian indicator and signals more EURUSD losses.
Dailyfx.com provides free news, trading resources, and market analysis to the trading community.
Written by Antonio Sousa, Chief Strategist
Dailyfx.com provides free news, trading resources, and market analysis to the trading community.
A sharp contraction of economic activity in the euro zone is likely to pressure the ECB to cut rates and lead to a significant deterioration of interest rate differentials in favor of the U.S. dollar going forward.
European Banks Have Written Off More than 1/3 of Losses Related to the U.S. subprime market
The U.S. dollar has been one of the main beneficiaries of the lack of confidence that characterizes the current global financial system and I expect more EUR/USD weakness going forward on speculation the ECB will have to cut interest rates to promote growth as the euro area economy slows down and inflationary pressures ease. Indeed, European banks have written off $229 billion out of a global total of $588 billion in losses related the collapse of the U.S. subprime market and economy activity in the euro area has been close to recessionary levels. I have been short EUR/USD since 1.47 and I expect the euro to fall to 1.28 once investors start looking beyond the short term implications of the recent actions taken by EU policy leaders to inject liquidity in the European banking system.
Sentiment Analysis
The ratio of long to short positions in the EURUSD stands at 1.32 as nearly 57% of traders are long, according to the FXCM SSI which measures the positioning of thousands of retail traders. Last week, the ratio was at 1.20 as 55% of open positions were long. Retail traders have been buying the EURUSD and long positions are up by 23.9% since last week. The SSI is a contrarian indicator and signals more EURUSD losses.
Dailyfx.com provides free news, trading resources, and market analysis to the trading community.