Saturday October 25, 2014 Search
Weather | Athens
19o C
12o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Euro calls rally to highest since 2009 as Draghi defied

By Inyoung Hwang

The options market isn’t convinced European Central Bank President Mario Draghi will succeed in his aim to weaken the euro.

The cost of bullish wagers on the Euro Currency Trust rose to the highest level since September 2009 relative to bearish bets last week, according to data compiled by Bloomberg. The U.S.-listed exchange-traded fund that tracks the euro versus the U.S. dollar has slipped 0.1 percent since Draghi unveiled stimulus measures for the euro-area economy.

Draghi said in May that the strong euro is “a serious concern.” On June 5, the ECB cut its deposit rate to minus 0.1 percent, becoming the first major central bank to take one of its main rates negative. The ECB also opened a 400 billion-euro ($544 billion) liquidity channel tied to bank lending. That had little effect on the 18-nation shared currency as Federal Reserve Chair Janet Yellen affirmed a commitment to hold the main U.S. rate near zero for a considerable time.

Investors pared bearish bets amid uncertainty over what the ECB may do next to boost the region’s economy, according to Hidetoshi Honda of Mizuho Corporate Bank. Short interest on the euro ETF out of shares outstanding has dropped to 72 percent from 96 percent on June 2, according to data from research firm Markit.

“There’s not much left on the table for the ECB,” Honda, a currency strategist at Mizuho in London, said by phone. “We’ve been trading on this divergence of central bank policies for a while. We expect the Federal Reserve to tighten, continue tapering and hike rates soon. In the euro area, a rate hike is quite a distance away. Most of that has been priced in.”

US rates

The euro increased 0.3 percent to $1.36 on June 27. The currency reached a 2 1/2-year high of $1.3993 on May 8. It has been climbing against the U.S. dollar for almost two years as the euro-zone economy moves on from the sovereign-debt crisis that dragged it into its worst-ever recession in 2009.

“Some bears have thrown in the towel,” Axel Merk, who oversees $400 million as president and founder of the Palo Alto, California-based Merk Investments LLC, said by e-mail. “The ECB’s actions earlier this month were aimed at weakening the euro, but the ECB’s hands are tied. A negative deposit rate doesn’t cut it when there are no deposits left at the ECB.”

Calls betting on a 10 percent rally in the ETF cost 0.3 point more than puts pricing in a 10 percent decline on June 25, according to three-month implied-volatility data compiled by Bloomberg. Puts have cost more than calls in the last year by an average of 2.1 points.

Bearish options

Bearish options volume for the euro ETF, known by its ticker symbol FXE, has slumped. The number of puts that changed hands was 8,266 in the week ended June 27, data compiled by Bloomberg show. That’s 80 percent lower than the 40,507 in the week ended June 6 when Draghi spoke.

“The U.S. is clearly headed in the opposite direction of the ECB, so the dollar should strengthen against the euro,” Marshall Gittler, head of global foreign-exchange strategy at IronFX Financial Services Ltd, said by telephone from Limassol, Cyprus. “There’s a good chance the ECB will further loosen measures later in the year if the current policy proves to be ineffective. The Federal Reserve’s going to have a hard time not tightening when inflation is getting close to their target.”

US inflation

While the Fed’s target inflation rate is 2 percent, its preferred gauge for inflation rose 1.8 percent in May from a year earlier, the biggest 12-month increase since October 2012, data showed on June 26. Speaking earlier this month, Yellen downplayed concerns about asset-price bubbles and incipient inflation.

Hedge funds and other large speculators increased bearish wagers on the euro to 57,503 contracts in the week ended June 27, figures from the Washington-based Commodity Futures Trading Commission show. They reached 61,835 contracts on June 20, the highest since May 2013 and compared with 2,175 wagers on May 16.

The median estimate of economists and strategists in a Bloomberg survey is for the euro to weaken to $1.34 by September and to $1.32 by the end of the year.

The VStoxx Index, which measures the cost of Euro Stoxx 50 Index options prices, rose 1.1 percent to 15.46 at 1:16 p.m. London time. The Chicago Board Options Exchange Volatility Index, known as the VIX, fell 3.2 percent to 11.26 on June 27.

U.S. interest rates after accounting for inflation should remain low as the Fed caps them with further guidance and quantitative easing, while implicitly targeting inflation of above 2 percent, according to Stephen Gallo, the European head of currency strategy in London at Bank of Montreal. In the euro area, inflation-rate divergence with the U.S. eventually leads to higher real rates, he said.

“The looser-for-longer mentality the Fed seems to be sticking with is dollar negative,” Gallo said by phone. “We think the euro is going to challenge $1.38 again.” [Bloomberg]

ekathimerini.com , Wednesday Jul 2, 2014 (13:31)  
TAIPED waits for green light from Eurostat
Trade deficit shrinks on big drop in imports
SMEs unable to claim subsidies
Taxes kept growing in second quarter
Athens, Nicosia satisfied by EU leaders stance toward Ankara
A reference in Fridays European Council conclusions calling on Turkey to respect Cypruss sovereign rights left Athens and Nicosia content with the outcome of the European Union leaders su...
Suspended policeman chief suspect in cousins murder
A 27-year-old police officer who has been suspended from duty since 2013 for extortion, is being treated as the chief suspect in a murder committed in a suburb of Piraeus on Thursday. Police...
Inside News
BASKETBALL
A win is a win is a win for Olympiakos
A bad Olympiakos defeated a worse Laboral Kutxa 63-57 to make it two out of two in the Euroleague on Friday. In a game where the two teams had an overall field goal rate of about one in thre...
SOCCER
Panathinaikos snatches point at Eindhoven
Panathinaikos offered its fans a glimpse of its glorious past in European competitions snatching a draw at PSV Eindhoven, on an otherwise bad night for Greek soccer in the Europa League, as ...
Inside Sports
COMMENTARY
End of reason, end of humanity
The effects of a slew of new and increased taxes introduced since the start of the crisis were first observed in the wages of those still fortunate enough to have jobs, who saw their take-ho...
EDITORIAL
Banks need to step up
What has been leaked so far regarding the results of the stress tests on Greeces lenders, which are due to be published on Sunday, appears positive. Greece needs a healthy, private banking ...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
RECENT NEWS
1. A win is a win is a win for Olympiakos
2. TAIPED waits for green light from Eurostat
3. Trade deficit shrinks on big drop in imports
4. SMEs unable to claim subsidies
5. Taxes kept growing in second quarter
6. Thessaloniki Port expects 2014 to be record year
more news
Today
This Week
1. End of reason, end of humanity
2. Banks need to step up
3. Woman killed in tram accident in Floisvo, south of Athens
4. Clocks to go back 1 hour on Sunday
5. Venizelos slams Turkey for 'flagrant violation of international law' off Cyprus
6. ECB vies for third time lucky in European stress tests
Today
This Week
1. The past, present and future of the Greek debt crisis
2. Greeces closed society is central to its current malaise
3. Greece must stick to reforms, says Schaeuble
4. At least 11 banks to fail European stress tests, three in Greece, report says
5. Cyprus to block Turkey's EU talks after EEZ violation
6. Stop moaning and get in the game
Find us ...
... on
Twitter
... on Facebook
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright 2014, H KAΘHMEPINH All Rights Reserved.