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Euro Rally to Stall on Weakness Outside Germany, JPMorgan Says: Tom Keene
The euro’s rally will probably end as economic weakness in Europe outside Germany saps demand for the 16-nation currency, according to Rebecca Patterson of JPMorgan Chase & Co.
The currency has rallied 10 percent from a four-year low of $1.1877 reached June 7, encouraging hedge funds and other large speculators to reduce bets against the currency to a six-month low. The euro may peak after reaching at least $1.3125, the next level of technical resistance, according to Patterson.
“We’re close to the point where you want to start lightening up on long euros,” Patterson, global head of foreign exchange at the private banking unit of JPMorgan in New York, said in a radio interview today on “Bloomberg Surveillance” with Tom Keene. “Germany is the only element of strength here. It’s Germany versus the rest of Europe. And I think with that backdrop, it’s hard to see all of this continuing very far.”
The euro climbed 0.7 percent to $1.3086 at 1:49 p.m. in New York, from $1.2995 yesterday, after advancing to $1.3107, the highest level since May 4. The shared currency was headed for a July rally of 6.9 percent versus the greenback after today’s advance erased last week’s 0.2 percent drop.
Europe’s currency traded above $1.31 for the first time in almost three months after the Federal Labor Agency in Nuremberg said Germany’s unemployment rate fell this month to 7.6 percent, from 7.7 percent.
“At these levels I’d be happy to start selling it again,” Patterson said in the interview.
Euro Net Shorts
The difference in the number of wagers by hedge funds and other large speculators for a decline in the euro compared with those on a gain fell on July 20 to 24,251, the lowest level since January, according to the Washington-based Commodity Futures Trading Commission. Net shorts reached a record 113,890 on May 11.
The euro also got a boost today as the European Commission in Brussels said today that an index of executive and consumer sentiment in the euro nations increased this month to 101.3, the highest since March 2008.
The currency region may lag behind other industrialized economies this year, expanding just 1 percent, the International Monetary Fund said on July 8. In Japan, the economy may grow 2.4 percent in 2010, while U.S. gross domestic product is seen increasing 3.3 percent, the IMF forecast.
In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index. A resistance level is an area on a chart where orders to sell a currency versus a counterpart may be placed, potentially blocking an advance.
To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net; Tom Keene in New York at tkeene@bloomberg.net
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