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February 3, 2022

Should You Now Short Euro After This?

Frank Cabibi

Today, the European Central Bank announced that they will be keeping their rates the same at -0.50%. This dovish statement is raising some eyebrows as investors look at the inflation index hitting a higher number since the 90s. The recent rise could be an indication that sellers are getting ready to short euro.

Reasons To Short Euro

Other than inflation rates, President Lagarde gave a bearish outlook on the economy of the Euro-area as a whole. Lagarde said that Europe is simply not ready for higher interest rates. This means that these countries have a long way to go recovery-wise. It also means that they can't even consider catching up with other countries who are already taking these measures.

short euro

Additionally, ECB has interest rates set to -0.50%, meaning that you will get paid to borrow a loan or keep your money in a bank, but purchasing the euro will not yield you any money. And the euro's value will keep depreciating with inflation rising. Overall, this looks less attractive to other interest-yielding currencies like USD or GBP.

Short Setups

short euro
EURAUD is shooting up towards the top of a wedge on the 1D chart. Price could retrace from this level and come back down to support around the 200 and 50 DMAs.
short euro
EURGBP is up 0.65% on the day despite the ECB deciding to keep their short term interest rate the same while BOE has risen theirs to 0.50 from 0.25 bp. On the 1D chart, price is nearing a short term high and the 50 DMA.

Lastly, today's rise in the euro seems like a short setup to me. There isn't much reason to be bullish on this currency when you compare it to other governments' monetary policies. Record inflation and negative interest rates is not a good look for the euro. And I think that we will start to see further declines in the currency in the future.

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