Euro to Rally as Short Bets Drive Momentum Turn, Lloyds Says
February 10, 2012, 12:58 PM ESTBy Catarina Saraiva
Feb. 10 (Bloomberg) -- The euro is posed to rally to a more than two-month high as record bets against the currency and efforts to resolve Greece’s financial crisis suggest a turn in momentum, according to Lloyds Banking Group Plc.
Short positions, or bets the price will drop versus the dollar, in the euro futures market reached a record last month, increasing the chance for the currency to climb from $1.3183 today to $1.36, Adrian Schmidt, a currency strategist at Lloyds Banking Group, said in a note to clients. A resolution leading to an agreement on a second bailout for Greece will support momentum, he said.
“We’re still sitting on record short positions and given that as the case, the momentum signals are improving,” Schmidt said in a telephone interview from London. “The market is very short and the tail risk is diminishing. It’s too important for the euro zone not to bail Greece out, as long as Greece is prepared to take the necessary measures.”
The euro has weakened about 3 percent since it last traded at $1.36 in November. The 17-nation currency slumped against the dollar the last two years.
Euro short positions reached 171,347 in the week ended Jan. 24, the most since the currency’s inception in 1999, according to data from the Commodity Futures Trading Commission. The bets were decreased last week to 157,546.
Austerity Measures
The euro’s 20-day moving average is at $1.3073, up from as low as $1.2863 Jan. 24. The upward trend signals the euro has room to appreciate, Schmidt said.
The details of Greece’s second bailout package have yet to be worked out as leaders disagree on austerity measures. Greek Finance Minister Evangelos Venizelos said his euro-area counterparts refused to approve a 130 billion-euro ($171 billion) aid package because the government fell short of austerity demands. George Karatzaferis, the leader of Greece’s Laos party, said he couldn’t support an accord on cuts in its present form.
The euro will also receive a boost from the European Central Bank’s second unlimited three-year loan auction on Feb. 29, Schmidt said. The central bank in December lent banks 489 billion euros in the operation, helping quell concern of crisis contagion to the larger economies of Spain and Italy.
--Editors: Dave Liedtka, Greg Storey
To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
