By: Barbara Zigah
Earlier this week, the Euro slipped to a 4-year trough versus the U.S. Dollar on continuing worries that economies in the Euro-zone will have difficulty recovering from fiscal woes. As a result, investors rushed to sell off their holdings in the Euro, driving net short positions to a new record high for the single currency. Some European market players commented that liquidity was very thin. Analysts warn, however, that intervention by the European Central Bank, as is widely speculated, would prop up the single currency, consequently, risk aversion by investors may mean an opportunity missed. One analyst suggested that while it’s natural for investors to be risk averse, especially given that the Euro could trend lower under current market conditions, in so doing they are vulnerable to the possibility of ECB intervention.
Since the beginning of the month, the common currency has lost nearly 6% of its value against the greenback, and speculators believe that the ECB will have to acknowledge their concerns soon. Contrary to speculation, however, Jean-Claude Juncker, the Euro-zone finance chairman, commented that, in his opinion, “immediate” action to prevent the Euro’s downward spiral was unnecessary. As reported at 4:00 p.m. (JST) in Tokyo, the Euro was trading versus the U.S. Dollar at $1.2500; earlier in the session on the EBS platform, however, it had reached $1.2673.