Reporter of the Economic Business: Cai Ding Editor of the Economic Business Business: Cheng Peng, Gao Han, Gai Yuanyuan
is on the meter! The euro is more expensive than the US dollar, and the general perception of market entities in the past 20 years is being subverted.
At around 17:00 on July 12, Beijing time, euro hit and even fell below par (i.e. 1 euro to 1 dollar), and the currency pair reached a low of 0.99999 on the day. The last time I saw this situation in , it can be traced back to in December 2002.
As of press time, the euro exchange rate against the US dollar
The expectation of an economic recession due to energy supply problems posed pressure on the euro zone economy, and the euro has been falling sharply recently. The downward trend of the euro began to accelerate after the start of annual maintenance on Monday and the supply was suspended.
There are many opinions that falling to parity may be the beginning of the euro's decline. Mitsubishi UFF Financial Group exchange rate analyst Lee Hardman pointed out in a comment email to a reporter from " Daily Economic News " that once the euro falls below par, the euro's weakness may even accelerate and open a channel for trading between 0.9500 and 1.0000 of the euro and the U.S. dollar. ”
It is worth mentioning that the dollar index officially broke through the 108 mark, hitting a new high since October 2002. Over the past year, the US dollar has risen by as much as 18% against a basket of currencies. Technical indicators show that its upward trend may continue. Under heavy pressure, gold, which is the most popular at the beginning of the year, finally couldn't hold on. Recently, the international gold price has fallen below the $1,800 mark, and as of 14:00 Beijing time on the 12th, it fell nearly 16% from the high of $2,050 on March 8.
Euro will continue to fall? Short positions reached US$2.2 billion last week
Last week, shorting the euro has become one of the "most popular trades".
Scotia Bank strategists Shaun Osborne and Juan Manuel Herrera Betancourt wrote in a report on Monday that the euro position has the biggest weekly change compared to other major currencies, with net short positions increasing by $769 million last week, and the total short positions reached $2.2 billion, the largest since the end of November last year. According to Bloomberg, strategists at Nomura International and HSBC Bank told clients last week that they are expected to see more losses in the euro in the future.
Many investment banks believe that falling to parity may be the beginning of the euro's decline.
According to
5 Reuters , On July 11, local time, Russia's largest single pipeline for transporting natural gas to Germany, "North Stream 1", began annual maintenance work, so it is expected to suspend natural gas transmission for up to 10 days (July 11 to July 21). The market is worried that the pipeline will not be restored as scheduled under the geopolitical game, which will further escalate the European energy crisis, becoming the "last straw" that crushed the eurozone economy and was forced to suspend interest rate hikes .
George, global head of foreign exchange research at Deutsche Bank Saravelos previously said that "if the Nord Stream 1 completely stops gas delivery", the euro may fall below parity, challenging the 0.95 point.
Image source: ZeroHedge
Senior portfolio manager at BlueBay Asset Management, Kaspar Hense, senior portfolio manager at BlueBay Asset Management, said cutting off Russia's supply could lead to the implementation of the rationing system in Europe. If this happens, "we will see a serious recession in Europe." It could be a very long winter. ”
Hense said that Blue Bay assets have been shorting the euro since last month. He expects that if Russia stops supply, the euro will fall to 1 euro to 90 cents.
Nomura International strategist Jordan Rochester predicted on Tuesday that the euro may fall to 0.98 against the dollar by August; Dutch International Group (ING) believes that at the worst case scenario, the euro will fall to 0.9545 against the dollar in the next four weeks.
Daily Economic News reporter noticed that market concerns about the European economy have been increasing since the Russian-Ukrainian conflict. The initial CPI value of the euro zone in June rose 8.6% year-on-year, setting a new high since 1997, which is traceable to traceable statistics.Behind the euro zone inflation outbreak is the risk of instability in supply, soaring prices of various commodities such as energy and food, tightening of wallets in households, and stagnating corporate activities are also intensifying.
html Preliminary data released in late June showed that the eurozone economic growth deteriorated sharply to a 16-month low in June, manufacturing output contracted for the first time in two years, and service industry growth cooled down significantly, among which the slowdown in the consumer-oriented service industry was the most obvious. Companies also lowered their output expectations for the coming year to their lowest levels since October 2020, with stagnant demand and deteriorating outlooks being widely attributed to rising cost of living, tightening financial conditions and disruptions to energy and supply chains caused by the Russian-Ukrainian conflict and the pandemic.Specifically: the comprehensive PMI of the euro zone fell to 51.9, with the previous value of 54.8, a 16-month low; the manufacturing PMI of the euro zone fell to 52, with the previous value of 54.6, a 22-month low; the manufacturing output index of the euro zone was 49.3, with the previous value of 51.3, a 24-month low; the service PMI of the euro zone fell to 52.8, with the previous value of 56.1, a 5-month low.
Goldman Sachs Currently, it is estimated that the probability of the eurozone falling into recession in the next year is 40%, higher than the United States (30%). Goldman Sachs pointed out that "the biggest risk facing Europe is the chaos in energy supply." The overall trade balance of the euro zone worsened due to high energy prices, and the euro zone has suffered losses for six consecutive months as of April, which is also a factor that has led to the depreciation of the euro.
Image source: Visual China - VCG11425073728
Analyst: Global economic slowdown Concerns strengthening the attractiveness of the US dollar
Regarding the continuous strengthening of the US dollar index, Lee Hardman believes that the market's concerns about a sharp slowdown in global economic growth have supported the recent upward trend of the US dollar.
In a comment email to a reporter from the Daily Economic News, Harderman said, "The market is particularly concerned about the outlook for the European economy, which is triggered by the further supply suspension caused by Russia's tightening of energy supply. The market's concerns about a sharp slowdown in global economic growth have strengthened the relative security of the US dollar and helped the US dollar index hit a 20-year high."
He further stated that the US dollar is also more attractive as the Federal Reserve 5 Fed insists on accelerating its interest rate hike to cope with the risk of upward inflation. Overall, the development of the situation will still help the US dollar to strengthen further in the short term. "The latest IMM position report shows that the market has left room for speculative U.S. long positions. The main risk facing our bullish dollar view will be the U.S. June CPI data released on Wednesday Eastern Time."
Hardman also pointed out that deteriorating energy supply restrictions are making the European Central Bank face greater challenges in formulating monetary policies.
The latest monetary policy statement released by the euro zone last month showed that the bank hopes to start hikes by 25 basis points at its meeting later this month, and then a 50 basis point hike in September.
Hardman believes that this situation has been fully digested in the European interest rate market. After September, market participants still expect the ECB to continue hikes until policy rates are close to 1% by the end of the year. "As the downside risks of the euro zone economy continue to increase, these expectations are more likely to fall; if the ECB measures do not satisfy market participants and further suppress the bank's interest rate hike space, the downside risks of the euro will be strengthened."
"In this case, we expect the bearish trend of the euro to remain unchanged. Once the euro falls below parity, the weakness of the euro may even accelerate and open a channel for trading between 0.9500 and 1.0000 of the euro-dollar." Hardman added to reporters.
Another analysis pointed out that from the perspective of the US dollar is mainly due to the tightening of the US dollar liquidity in the context of the Federal Reserve's tightening, coupled with the global economic recession background, which intensified risk aversion sentiment, which stimulated the US dollar index to rise to 108 points in extreme cases.
analysis pointed out that from the euro perspective, the main reason is that the conflict between Russia and Ukraine has exacerbated the severity of the risk of economic stagflation in the euro zone. In addition, the ECB's tightening expectations have exacerbated the internal economic and financial divisions. In the future, the debt default expectations of some countries in the euro zone will affect market confidence in the euro.It is expected that the extreme depreciation of the euro may affect the application and reserves of the euro in the international monetary system , which may require major countries to re-cooperate to adopt currency swap or other methods to rebuild euro confidence.
"Daily Economic News" reporter noticed that the euro performed weakly shortly after its debut in 1999, falling below the parity level of 1 euro against 1 dollar at the end of the same year. By 2002, the euro currency began to circulate and the euro exchange rate against the US dollar returned to parity. The euro continued to appreciate after that, reaching a high of around 1 euro to 1.6 US dollars in 2008. But since then, economic concerns such as European debt crisis have spread, and the euro exchange rate against the US dollar have fallen.
Gold price plummeted
Under the strong US dollar, the commodity , which is denominated in US dollars, performed poorly, and gold has also seen a significant decline in recent times.
In the past two weeks, the gold price fell below the $1,800/ounce mark in one fell swoop, and fell sharply to around $1,736/ounce on July 7, which is the second largest drop this year. This week, the gold price fell below the $1,730/ounce mark. As of press time, the gold price was at $1,737/ounce. Judging from the COTh (Trader Position Report) two weeks ago, active fund and large speculators have continuously increased their short positions.
According to First Financial , a commodity trader in a foreign bank told reporters: "Before, gold quickly fell below $1,800, which itself indicates that it triggered a large stop loss order, and the bulls may suffer more blows. Gold VIX rose to a 3-week high, with a price drop of nearly 3% last week. It is obviously not a feature of a safe-haven asset, suggesting that participants have noticed the risk of adding margin ." He also said that the next target price may be at the support level of $1,721/ounce. If it breaks below this level, focus on the position of $1,700/ounce.
In the first half of this year, against the backdrop of rising real yields and interest rate hikes, gold prices remained strong, which was due to the expectations of global central banks for diversified allocation of reserve assets, and also related to the conflict between Russia and Ukraine and related sanctions. Gold once broke through the $2,050/ounce mark in March. However, as the Fed's interest rate hike in has become increasingly aggressive recently, as a non-interest-generating asset, the attractiveness of gold has begun to decline.
Traders and strategists interviewed by reporters generally believe that gold prices may only regain momentum after the Fed's aggressive interest rate hike cycle slows down. "Once the Fed's interest rate hike is slightly less than market expectations and the US dollar peaks, gold should meet expectations and perform well," Fawad Razaqzada, a senior analyst at City Index, told reporters.
At present, the global central banks still have further diversified allocation needs. For example, in the first quarter of this year, the official gold reserves of global central banks increased by 84 tons, and net gold purchases increased by more than doubled month-on-month. In the medium and long term, the support factor for gold prices mainly comes from the status of gold's core safe-haven assets, from the demand for physical gold led by India and China, and the increased reserve allocation.
(Statement: The content and data of the article are for reference only and do not constitute investment advice. Investors act on this basis at their own risk.)
reporter| Cai Ding
editing| Cheng Peng Gao Han Du Bo Gai Yuanyuan
proofreading| He Xiaotao
part is integrated from First Financial
cover picture source: Visual China (without pictures and text)
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