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Euro Lingers Near Eight-Month Low, ECB Pending

Posted by Joseph Trevisani on Aug 4, 2014 3:26:00 PM

The euro was exchanging within half a figure of its eight month low against the dollar as traders speculate that the European Central Bank may take further measures this week to bolster the ecoomy and devalue the united currency.

 The U.S. Commodity and Futures Trading Commission reported on Friday that net short positions in the euro as of July 29th had risen to -108,075 contracts compared to the prior week's net of -88,823 contracts.  It was the largest short position since August 21st, 2012 when short interest reached -123,932 contracts. 

The common currency has lost 4.1 percent versus the dollar since touching 1.3992 on May 8th as ECB President Mario Draghi  has cut interest rates to a record low of 0.15 percent to head off deflation in the European Monetary Union (EMU). 

Inflation in the EMU on the producer level returned in June with the first positive monthly reading since last December at 0.1 percent. Those five straight months of falling producer prices were one of the indicators that spurred the central bank to mandate charges for deposits held at the bank the so-called 'negative interest rates', in an effort to encourage commercial bank lending. Producer prices dropped 0.8 percent on the year in June, slightly lesss than the 1.0 percent drop in May and half the 1.6 percent plunge in March. 

The preliminary consumer price index for July was just 0.4 percent annually, the weakest inflation reading in almost five years, and down from 0.5 percent a month earlier.

The ECB Board of Governors meet this Thursday and Draghi is expected to resort to dovish rhetoric to keep the pressure on the euro whose strength he has said is a drag on the euro zone economy.

Mr. Draghi is not predicted to unveil any new measures along the lines of the Federal Reserve's quantitative easing program of direct market purchases of securities and sovereign debt. The ECB is forbidden by its charter from funding the budeget deficits of its constituent countries. 

Current euro weakness is driven by ECB policy and that outlook is not about to change.


Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Chart: WWM Alpha Trader



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