Traders are a bit puzzled that the euro is pressing higher in the wake of a weak German ZEW survey earlier. The April survey showed the 'current situation' index at 9.2 vs MNI median forecast of 12.2 and a March reading of 13.6, and the 'expectations of economic growth' index was at 36.3 vs MNI median forecast of +42.0 and a March score of 48.5.
The driving force behind the euro seems to be the undermining of the assumption that the US economy would easily best Europe's by the recent spotty US data, evident again today in the 0.1% fall in manufacturing output in April.
The market has also been short euros and has tended to sell euros on rallies. This is backed up by BOA Merrill Lynch's monthly fund survey. The survey noted that Cyprus jitters and overall EU sovereign issues took a toll in April, with the allocation to eurozone equities back to an underweight for the first time in eight months. A net 8% of portfolio managers were underweight eurozone stocks in April, compared to a net 4% overweight in March and a net 8% overweight in February.
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