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Lone Star Forecaster Who Called Swiss Franc Move Sees Euro Gains

  • Schenker's contrarian call sees euro rising by year-end
  • `I haven't found this particularly difficult to defend'

Even as the Federal Reserve considers raising interest rates as soon as Thursday, Jason Schenker is bullish on the euro, not the dollar.

From his office in Austin, Texas, the president of Prestige Economics LLC isn’t afraid to make contrarian calls -- he was the only analyst among more than 50 surveyed by Bloomberg who predicted Switzerland would abandon the franc’s cap against the euro this year. When the euro sank to a 12-year low in March, the economist bucked Wall Street’s consensus by turning bullish. He now predicts the common currency will rise to $1.16 by year-end from about $1.13 today -- and he’s closer to being right than other analysts who called for the euro to fall to parity with the greenback.

“What’s driven my currency view is the belief that Europe fundamentally would respond to a quantitative-easing program,” Schenker, who’s among the top forecasters of currencies and commodities ranked by Bloomberg, said in a phone interview. “I haven’t found this particularly difficult to defend.” 

The euro has been bolstered by improving economic data from the 19-nation euro-area economy and a Greek debt deal that averted the nation’s exit from the currency union. Last month, the euro rebounded 1.5 percent against the dollar as investors unwound bets the common currency would fall after China’s shock revaluation of the yuan.

Fading Pessimism

The number of forecasters predicting the euro will weaken to parity with the dollar by year-end has dwindled to four from as high as 23 in May. The euro will fall to $1.07 by year-end, according to the median estimate of analysts surveyed by Bloomberg.

“I’ve been bullish for most of the year,” said Schenker, who formerly worked as a consultant in Germany for McKinsey & Co. “The euro zone is likely to improve,” and as inflation and growth increase, the bloc may shorten its 1.1 trillion-euro ($1.2 trillion) bond-buying program, he said.

The futures market also shows euro pessimism has faded. Net bearish bets on the currency by hedge funds and other money managers were at 81,241 contracts last week, down 64 percent from a record 226,560 in March, according to data from the Commodity Futures Trading Commission.

Expectations of U.S. monetary tightening, versus easing elsewhere in the world, propelled the dollar higher against all of its major peers in the last 12 months. Some of the greenback’s gains have reversed in the last month as traders became more uncertain about the timing and pace of a Fed interest-rate increase.

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