Short positions against the euro are increasing. Traders expect a drop below $ 1.08.

The euro reached its lowest value since 2017 against the USD. However, traders continue to make sales. Market participants expect further depreciation of the euro.

Investors now need to hedge further with options against the continued appreciation of the US dollar. Despite the slightly higher risk of sentiment, the euro remains under severe pressure for a week. This pressure is expected to continue regardless of developments with the coronavirus.

FX strategists note that the euro is in a strange situation. The downtrend remains in full force regardless of the risk environment. The euro has failed to attract investors’ interest in profitability in a risk-on situation. However, in times of risk aversion, the US dollar performs much better as a safe haven asset.

Initial investor expectations were for the euro to stabilize with the start of the new year. Instead, the single currency is down 3%.

Traders do not take unnecessary risks. Demand for euro short options is increasing, with bets suggesting a price drop below $ 1.08 – $ 1.05.

Source: Bloomberg Finance L.P.
Graphs: Used with permission of Bloomberg Finance L.P.

 Trader Martin Nikolov

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