EUR-USD May Risk Losing Investor Confidence: DB Bank's Marten

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00:00Sonia Martin of DZ Bank writes,

00:02The correction in euro dollar has run its course fundamentally.

00:05There is still one major risk factor at play,

00:08the large overhang of the speculative long positions

00:10that could spell trouble in the very short term.

00:13Sonia joins us now.

00:14Sonia, just explain that.

00:16Where do you see euro dollar going

00:17if we have this speculative long still baked into the market?

00:21Good morning, yes.

00:23In fact, one of the big problems that we have seen recently

00:25is that we have built this massive overhang

00:28of speculative long positions.

00:29It started around April, so with Liberation Day,

00:31that's when it really kicked off.

00:33I estimate that the average entry level of these positions

00:37is probably around 110, 112.

00:39So right now you could say that they're still

00:40quite comfortably in the plus.

00:42But obviously there is a risk that if euro dollar

00:44starts to edge lower again,

00:46that these investors will lose confidence.

00:48And we're looking right now at about 125,000 contracts.

00:51That is a quite significant amount.

00:54And what could happen, obviously, is, as I said,

00:56if euro dollar does pull back for whatever reasons,

00:58then these investors will start to liquidate

01:00at least some of their positions,

01:01and that could accelerate the move.

01:02And I think the critical question would be

01:04at what levels do fundamental investors,

01:06who might feel very well, or very rightly,

01:08I think, that maybe levels around 114,

01:11are good buying opportunities,

01:12when will they come in and pick up the slack?

01:15So, you know, we have a 15% tariff rate

01:18when it comes to the European Union,

01:19but who's to say that's going to last Trump's entire term?

01:23Is there potentially concern when it comes to the currency pair

01:26that we could even see higher rates

01:28or those sectoral tariffs hitting the currency?

01:31Yes.

01:32I mean, the market reaction last week

01:34to the trade deal announcement was very clear.

01:36The euro lost quite a lot of value on Monday

01:39in the early part of the week.

01:41And this was because of that concern.

01:44So, obviously, we have 15% now.

01:46You could argue that that's better

01:47than the 30% we feel we might get.

01:49But what the market is looking at

01:51is the fact that we have now capitulated in front of Trump.

01:55So we have given in.

01:56That's the, I think that's the interpretation.

01:58And I think the concern is, indeed,

01:59that in doing so, we've basically provided him with a door,

02:03we've opened the door to more tariffs,

02:05and that if he feels like it in a few months' time,

02:07six months' time, who knows,

02:09that we might be hit with higher tariffs.

02:11And I think that's what the market reaction was all about.

02:14Not so much about the actual tariff,

02:16where 15% obviously isn't great.

02:18It's going to dampen somewhat the outlook for Europe,

02:21and particularly the export-strong nations.

02:23But it's not a complete disaster yet.

02:25But I think the yet is what people are worried about.

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