Euro Gains Supported by Increasing Institutional Demand

According to ING's Chris Turner, futures data suggests that asset managers and leveraged funds are adding Euro exposure, leaving speculators underweight. This is evident in recent positioning data from the Chicago futures market, which shows a modest increase in euro contracts being bought by these groups.

The amounts involved are not particularly large, but this development serves as a reminder that speculators have been relatively cautious about the Euro, making them more vulnerable to potential gains in the currency. Turner notes that this is consistent with previous observations of hedging data for EUR/USD.

Looking ahead, the release of August's German IFO on Wednesday is expected to show continued improvement after a sharp drop in March and April. This, combined with recovering Eurozone PMIs, suggests that there is limited need for the EUR/USD to fall sharply below 1.1660/70.

ING remains bullish on the Euro, maintaining its forecasts of 1.17 for end-September and 1.18 for year-end under review. However, Turner cautions that these targets could be at risk if risk assets suffer a downturn.