The EURUSD and the ECB-FED race to the bottom

According to the latest data on the committments of traders published on June 11, leveraged funds have significantly decreased their long positions by -11,817 units to 31,166 overall and also shortened the short positions by -400 units to a total of 134,565, bringing the difference between long and short positions, proving to bet on a depreciation of the euro against the dollar in the short term. The dealers increased their long positions by +3,571 units to a total of 35,062 units and strongly increased their short positions by +11,203 units to a total of 112,458 units, proving to bet on an appreciation of the dollar in the medium and long term. Finally, the asset managers increased the long positions (+1,460) to 297,222 units and the short positions (-14,584) fell sharply to 148,904 units. What is happening among EURUSD investors?

The race to the bottom in which the European Central Bank and the Federal Reserve are engaged is one of the most important reasons which explains the current equilibrium of the euro-dollar exchange rate. Market expectations for central banks’ policy rates have been pushed further into the future. The ECB is not expected to increase rates until mid 2020, while markets expect the Federal Reserve to lower them as soon as late-2019. The super dovish forward guidance followed both by Mario Draghi and by Jerome Powell has not only effects on interest rates and stock markets but also on Forex markets.

Notwithstading the US economy is performing better than that of the eurozone, with a higher GDP growth rate and a lower umemployment rate, the fear of a US recession is always in economists’ mind and many of them believe the current Fed’s monetary stance is still too hawkish. Beliefs that both Europe and the US are headed to a downward economic trend in the next months is convincing Forex traders that time to bet either on the dollar or  the euro is not arrived yet.