European Central Bank President Mario Draghi is warning investors not to bet against the euro. They don’t seem to have gotten the message.
The euro’s longest winning streak in a year stalled Monday as regional leaders wrangled with a defiant Greece over how to avoid a default. Draghi said in Washington Saturday that while the situation is “urgent,” it’s premature to speculate about a Greek exit from the currency union. Bets by hedge funds and other large speculators that the euro will decline against the dollar remained near a record high in the latest data from the Washington-based Commodity Futures Trading Commission.
“There are concerns over the ability of Greece and its creditors to reach an agreement at the euro finance ministers meeting on April 24,” Toshiya Yamauchi, a senior analyst in Tokyo at Ueda Harlow Ltd., a margin-trading-services provider, wrote in a note to clients. “The euro’s rally amid those circumstances feels all wrong.”
The single currency slipped 0.3 percent to $1.0778 at 6:59 a.m. in London, following a 2.3 percent advance over the previous four days, the longest winning run since April last year. It dropped 0.5 percent to 127.87 yen.
ECB Governing Council member Christian Noyer said in an interview with France’s Le Figaro newspaper that Greece’s exit from the euro would plunge the country into a major economic crisis, be traumatic for the region, and hurt global growth.
So-called net shorts among speculative investors stood at 212,347 contracts in the week ended April 14, compared with a record 226,560 contracts for the period ended March 31, according to the latest CFTC data. Options traders reduced their bearish bias for euro declines against the dollar to the least since Feb. 26, one-month 25-delta risk reversals showed.
“It’s pointless to go short on the euro,” Draghi told a news conference during meetings of the International Monetary Fund. “Do it.”
Greece said it won’t renege on election pledges to end austerity measures, even as creditors pressed for a compromise to free financing and avert a worsening crisis.
“We want a viable solution within the euro,” Greek Deputy Prime Minister Yannis Dragasakis said in an interview published Sunday in Athens-based To Vima newspaper. Still, “we don’t budge from our red lines.”
European peers want Greece to do more to revamp its debt- burdened economy before they release another tranche of the 240 billion-euro ($259 billion) bailout program.
The euro tumbled 11 percent versus the greenback in the first quarter — the most among Group of 10 currencies after Denmark’s krone — as investors correctly predicted an expansion of the ECB’s quantitative-easing program to include sovereign bonds in March.
“In the context of the ECB’s ongoing 60 billion euro-per- month QE program — and regardless of one’s views on the likelihood of early Greek debt default and possible ‘Grexit’ — we suspect there will still be plenty willing to try” shorting the euro, Ray Attrill, the Sydney-based global co-head of currency strategy at National Australia Bank Ltd., wrote in a client note Monday.