With euro bears this rabid, Pimco says shorts a risk

By Anchalee Worrachate

Sentiment in the foreign-exchange market is so bearish toward the euro that it’s bullish.

Hedge funds and other large speculators have now wagered more on a decline in the 18-nation currency than about any time in the past two years, based on Commodity Futures Trading Commission data. The last two times pessimism reached fevered levels -- in May 2010 and June 2012 -- the euro rallied.

After falling about 4 percent from this year’s high in May to its lowest level since November, more investors say that much of the region’s bad economic news is priced in the currency. That means there’s a greater chance the euro will rebound as the bears cover their so-called short positions on data showing anything other than weaker growth.

“Euro shorts are stretched to the point that they make the euro vulnerable to near-term reversals,” Thomas Kressin, the Munich-based head of European foreign-exchange at Pacific Investment Management Co., said by phone on Aug. 8. “Any move lower in the euro will be glacial.”

A repeat of 2010 and 2012 would jeopardize European Central Bank President Mario Draghi’s wishes for further weakness to help boost inflation and exports in a bid to bolster the regional economy. The ZEW Center for European Economic Research in Mannheim said yesterday that its index of German investor confidence, which aims to predict economic developments six months in advance, dropped to 8.6 in August from 27.1 in July.

Reports Loom

A report tomorrow will confirm euro-region inflation slowed to 0.4 percent in July, less than a quarter of the ECB’s 2 percent target, economists surveyed by Bloomberg predict. A separate poll suggests growth next year will be half the 3 percent seen in the U.S. An Aug...