Dulling the Double-Edged Sword
2012 has been a terrible year for the euro. Since January, it's lost more than 6% against the U.S. dollar -- and if we include the selloff six months before that, it has shed 16% vs. the greenback. Anyone who was long euros during the past year, and stayed long, has lost a lot of money. Thankfully, according to the Commitment of Traders Report from the Commodity Futures Trading Commission, not everyone just sat by idly and watched their losses grow. When the selloff gained momentum, speculators flipped their long positions to shorts -- and, by June, short euro positions were at their highest level ever.
Unfortunately, not everyone with a position in the euro can flip and short the currency. One large, deep-pocketed subset that falls into this category are central banks. The persistent weakness of the euro has driven many currencies in Europe sharply higher, and no country wants a strong currency in this economic climate. Global demand is weak, and a rising currency only makes exports more expensive and the country's goods less attractive. In order to fend off this strength, central banks have resorted to intervening in the currency market by selling their local currency and buying euros....389 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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