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Analysts at Brown Brothers Harriman explain that the euro fell to almost $1.15 last week as the turmoil in Italy (and Spain) reached a fevered pace.    

Key Quotes

“We suspect the 50% of the euro’s rally that began at the start of last year near $1.1450, is safe for the time being and the euro will work its way toward $1.1750-$1.1800.   The 20-day moving average is found in the middle of that range, and the euro has not traded above it since  April 20.   The Slow Stochastics did not make a new low to confirm the low in prices, leaving a bullish divergence in its wake.   The MACDs are also turning up.   The euro snapped a six-week slide with the week’s 0.2% gain.”

“The net long speculative euro futures position fell for the sixth consecutive week.   The record was reached in the second half of April at around 151.5k contracts.   It has fallen every week since and as of May 29 stood at 93k. But the net position reveals more than it conceals.   The net long position has been reduced by around 40%, but the gross long position has increased in the most recent reporting week.   It has risen in four of the past five weeks.   At 230.9k contracts, the gross long speculative is larger now that it was at the end of last year (~209k contracts).”

“The reason the net position has fallen is that the gross shorts have grown faster.    It has risen from 86.4k contracts in late April to 138k contracts as of May 29.   The gross speculative shorts have also risen in four of the past five weeks.   At the end of last year, the gross speculative short position was a little below 117k contracts.”