The stars do seem to be aligning for a more sustained rebound in the oversold EUR in the next few weeks at least. Economists at Scotiabank list five factors that are set to underpin the shared currency.
Euro helped by unhedged equity inflow
“Purchases of FX unhedged European equity ETFs are outpacing hedged ETFs which may help underpin EUR gains in the near-term.”
“Nominal and real yield spreads have narrowed in the past few weeks – whilst admittedly remaining very negative for the EUR.”
“Positioning and sentiment data have turned more supportive of the EUR; the latest CFTC data showed speculative accounts holding a net long of some 106k contracts, the biggest bullish bet on the EUR since mid-2021.”
“Technical factors suggest that – finally – the EUR is showing some significant, positive traction on the charts; major bear trend resistance off the early 2022 high has been clearly broken and EURUSD is within fractions of breaking the pattern of successively lower lows and lower highs that has persisted since February. Longer-term charts also indicate that the EUR slide has stalled (at least) while a high close on the month (Nov) will form the third leg of a bullish ‘morning star’ monthly reversal.”
“Dec is historically the strongest month of the year for the EUR (average return of +1.29% over the past 25 years, 1.25% over 20 years, 0.48% over the past 10 years and 1.14% over the past 5 years).”