Europe is getting hit from all sides An energy shock, a deteriorating macro backdrop, and shifting policy expectations are all converging, and the euro is starting to reflect it. What looked like a contained selloff is now turning into something more structural. Soggy Euro The euro has sold off aggressively in the wake of the Iran war. We briefly bounced at the range lows, but the move has been weak and lacks follow-through. Now sitting well below the 200-day moving average, with the 21-day crossing lower, a clear shift to a bearish trend. Last time this setup played out, the euro didn’t stabilize, it continued the move lower. The oil sucker The historically strong inverse correlation between oil prices and the euro has reasserted itself post-conflict escalation; Europe’s heavy reliance on imported energy makes it disproportionately vulnerable to Gulf supply shocks compared to the US. Chart shows how euro and oil (inverted) have moved in very close tandem since the “mess” began. Painful Euro longs were crowded just in time for the latest puke. More euros to sell? Further drop in skew suggests investors aren’t done selling the euro long. Positioning is unwinding, but not yet washed out. Terms-of-trade shock Unlike the 2022 Ukraine […]