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Contrarian traders are contemplating going long the euro, which has been the market’s punching bag for the last month and one of the most successful shorts for hedged funds since housing.
“The euro is failing to rally on good news — whether of an economic or a political nature,” wrote Audrey Childe-Freeman, senior currency strategist for Brown Brothers Harriman, in a note to clients. “In this context, it is rather controversial to be anything but a euro bear, but this may be the time to identify a few constructive developments and to get prepared for a potential correction” to the upside.
The currency is up a second day versus the dollar after Federal Reserve Chairman Ben Bernanke told a Congressional panel that the US would do what it can to support the European debt crisis. Bernanke has already opened up emergency swap lines as a backstop for the Europe’s crisis. The European Central Bank meets tomorrow.
The euro fell to a four-year low on Monday as hedge funds ganged up on the currency in a bet that any rescue package for Greece will only temporarily delay the spread of the crisis to other countries such as Hungary and Spain. Just a quarter of hedge fund managers believe any rescue package will have a positive long-run impact, according to a survey of investors by TrimTabs/BarclayHedge. About half of the managers are bullish the dollar.
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