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Euro Falls Despite Strong Economic Data

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Feb. 13 2018, Updated 5:00 p.m. ET

The euro-dollar exchange rate tests 1.22

The euro-dollar (FXE) exchange rate closed the week ended February 9 at 1.22, with the euro depreciating 1.8% against the US dollar. Whereas there was no disappointing economic data reported last week, risk aversion arising from a global equity market sell-off pushed foreign exchange traders towards the safety of the Japanese yen and US dollar. Germany reported better-than-expected industrial production and factory orders, which offset last week’s lower-than-anticipated trade numbers.

European equity markets, which are tracked by the Vanguard FTSE Europe ETF (VGK), along with their global peers, moved lower last week. Germany’s DAX (DAX) fell 5.3%, the Euro Stoxx 50 (FEZ) fell 5.6%, and France’s CAC fell 5.3%.

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Euro speculators decrease their bets

According to the Chicago Futures Trading Commission’s Commitment of Traders report, speculator positions fell by 7,919 contracts last week. Net speculative bullish positions on the euro (EUFX) fell to 140,823 contracts from 148,742 contracts. A drop in speculative euro long positions indicates reduced risk appetite across the board.

Outlook for the euro

This week, there is no market-moving economic data scheduled to be released from the Eurozone. Demand for the euro is likely to be driven by global risk appetite. If equity market turmoil cools off this week, we could expect euro demand to pick up. Otherwise, there could be further declines, depending on demand for safe-haven assets such as the US dollar and Japanese yen. In the next part of this series, we’ll look at why the British pound has fallen despite a hawkish statement from the Bank of England.

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