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The euro rallied to the highest level in more than two years as a brighter outlook for the bloc combined with a floundering dollar to boost the common currency.
The euro climbed as much as 0.8% to $1.2020, breaking past the key $1.20-per-
dollar-mark and topping its high from September.
The greenback was also weighed down Tuesday — the first trading day of a new month — amid a broad increase in risk appetite that pushed up stock prices and Treasury yields.
Optimism over a Brexit trade deal, signs the coronavirus pandemic in Europe is peaking, and a joint-debt breakthrough have helped the euro gain around 9% over the past 12 months.
It’s also benefiting from the dollar’s decline, as the prospect of an extended
period of loose monetary policy from the Federal Reserve weighs on the
greenback.
A break of this nature usually implies the beginning of a new uptrend that could take the EUR to 1.25.
But the last time the euro was so strong, European Central Bank officials intervened verbally to help weaken the currency.
Any intervention could reverse the breakout and send the EUR tumbling and the US dollar rising.
Moreover, speculators are more short the US dollar than ever…
The deepening slide in the U.S. dollar has prompted asset managers to boost their bearish bets on the currency to record levels, according to data from the Commodity Futures Trading Commission going back to 2006.
Net dollar short positions held by institutional investors such as pension funds, insurers and mutual funds hit an all-time high last week, based on an aggregate of positioning in eight currencies.
The Bloomberg Dollar Spot Index slumped more than 2% in November as progress toward a number of coronavirus vaccines damped demand for the greenback as a haven.
It would take very little to reverse the technical positioning in the US currency.
We remain strategically bearish US dollar for 2021, but the probability of a sharp snapback has risen considerably.
We would not chase the EUR Higher here.
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