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#1 01-09-2020 11:23:40

johnedward
Admin & Trader
From: Paris - France
Registered: 21-12-2009
Posts: 2910
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EUR/USD: what is keeping the euro so strong?

EUR/USD: what is keeping the euro so strong?


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One of the currencies that strengthened the most during the virus situation was the euro. Surprisingly, traders see it as a safe refuge in times of recession.

Net long positions have reached a new historical high according to the Trader Engagement report, as many traders have "carpeted" the euro. According to a Scotiabank report, net long positions in the euro account for 89% of all speculative positions opened in the forex.

Euro rising despite negative ECB rates

Last week the ECB published a report highlighting the positive impact that negative rates had on the European economy. This may be true from an economic point of view, but from a monetary point of view, the interest rate differential has not favoured the euro for some time now. However, it has had a hard time going below 1.0650 and finally reversed sharply.

The moral of the story is that the forex is not as simple as many people think. If the interest rate is higher on one currency and lower on another, it doesn't mean that the exchange rate reflects the differential.

The best example comes from the Swiss National Bank (SNB). Although it keeps the interest rate at -0.75% - the lowest among advanced nations - it has difficulty controlling the strength of the Swiss franc. In addition, it actively participates in the market, selling CHF and buying other foreign assets. The SNB's balance sheet is 13% higher than in the previous year due to investments in foreign currencies. At the same time, however, the Swiss franc is now at its highest level in five and a half years. In other words, the market values other elements, so interest rates are not the only thing to be taken into account.

The positioning of the euro on the market can be difficult to measure. As volume shows, a given currency broker is not accurate because it only shows that specific broker's trading activity, so the CFTC report is not entirely accurate. Yes, it does give you a good idea of the direction of the market, but traders should consider the results carefully. If one measures the euro in an ascending fashion using real money tracking and its relative value, one finds that the euro is fragile.

Whatever the reasons, the euro has had one of its best performances during this crisis.

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