Investors are increasingly betting that the dollar will weaken against the euro, according to data from the Commodity Futures Trading Commission.
Positions “shorting” the dollar, or poised to make money as the dollar’s value falls, reached $24.7 billion last week, rising for the fourth consecutive week and jumping up from $18.8 billion the week before.
The volume of short positions on the dollar has not been this high since August 2011 when the dollar was down 33 percent from where it was in April, before it began its decline.
The dollar’s weakness in recent weeks stems from the U.S. Federal Reserve’s continued near-zero interest rates, rising economic risks as COVID virus case numbers increase in the U.S., and the flood of dollars across the world the Fed has made available to help nations’ economies recover from the shutdown.
On 28 July, the dollar fell to its lowest value in two years against an assortment of six major foreign currencies, down about 10 percent from its 2020 high in March.
In contrast, the number of futures contracts betting the euro’s value will rise reached a record 157,559 last week.
Renewed enthusiasm for the euro began when the European Union’s leaders agreed on a massive stimulus plan to return the continent’s economy toward growth.
Since touching its 2020 low point in March, the euro has gained 12 percent against the dollar.
TREND FORECAST: The economic data from the Eurozone does not warrant a strong euro.
It is primarily rising because the dollar is falling.
From the drop in employed Spanish workers last month being the biggest on record, to plunging GDPs across the continent – and the European Central Banks endless money injection schemes – while the euro may move higher against the dollar, its true value, compared to gold, silver, and even cryptocurrencies, will diminish.
Many European nations reliant on tourism (which accounts for some 10 percent of many nation’s GDP) have imposed strict travel rules, such as banning U.S. citizens. Thus, tourism will not rebound this year… or next.
Even when COVID-related restrictions are lifted, the economic devastation of lost jobs and declining incomes across the globe will push the tourism and hospitality sectors lower.
Beyond tourism, on the export manufacturing front, declining consumer consumption from major markets such as China will further drag down Eurozone GDPs. Thus, with industries declining and unemployment rising, the ECB will further devalue the euro by pumping more of them into failing equity markets, business sectors, and deeply indebted governments.
