Short EURUSD Exited at ABN Amro, 16% Profit Booked

A high conviction bet on US dollar appreciation has been abandoned by ABN Amro strategists.

Betting on the cyclical upturn in the USD was expresed via a short EURUSD trade initiated almost 2 years ago by the Dutch bank. 

The trade delivered a return close to 16%.

The exit confirms many institutionals are going cold on chasing the dollar higher and the euro lower, particularly with the EURUSD's recent attack on the 1.15 ceiling.

ABN Amro initiated the short EURUSD on 20 November 2013.

"We decided to take our short euro/long US dollar off our high conviction list. It is likely that EUR/USD in the near-term will continue to move higher in wake of the pricing out of a possible Fed rate hike this year. Moreover, the recovery in the US dollar we expect for the coming months is relatively modest," says a note from the FX Strategy desk at the bank.

The EUR/USD will probably only start to fall again more convincingly during the course of next year when Fed rate hikes approach argue analysts at ABN Amro.

Therefore the possibility of entering a short EURUSD trade remains possible in 2016.

This FX conviction has been one of ABN Amro's best performing calls with a total return of close to 16%.

From a technical perspective the timing of the exit is arguably well timed. The EUR/USD raced to a high of 1.1493 this week, just a few pips shy of 1.15.

Traders will have stacked the approach to 1.15 with stop-losses with the idea their exit would be hit.

The longer-term picture is one of risk for the euro we believe.

Focus has been firmly placed on the US dollar side of the EURUSD equation, it must surely eventually return the Eurozone.

The ECB is the key fundamental risk with the prospect of an extension to its asset purchase programme lying ahead. 

Indeed, ECB member Nowotny is one of the few policymakers to step up and say that with inflation targets clearly being missed, "its quite obvious that additional sets of instruments are necessary." 

His words are resonating amongst the investment community because we are fast approaching the next ECB meeting.