German corporates sound warning on short-term EUR prospects

By:
Russell J. Dinnage
Published on:

Euphoria over the EUR’s prospects among German corporates after the European Central Bank’s (ECB) launch of the outright monetary transactions (OMT) bond-buying programme in September has evaporated.

According to a monthly survey from Commerzbank, German companies are now bearish on the short- to medium-term prospects for the health of the EUR.

The number of German companies in the EUR bear camp over the next three months grew by 18% in November from October, according to the Commerzbank survey.

And the increase in German corporate EURUSD bears this month brings to 38% the total number of firms in the country that think the current risk environment in the eurozone will be bad for their business, the survey says.

 German companies and their assessment of EURUSD
over the next 3,6 and 12 months

 
 Source: Commerzbank

The Commerzbank survey assesses the expectations of its main export-oriented corporate clients each month to product its FX Compass index. The index measures the proportion of bulls minus the proportion of bears in a number of EUR crosses over three-, six- and 12-month horizons.

Commerzbank notes in the November poll that the change in sentiment among the German companies on the health of the EUR comes as the majority of exchange-rate volatilities fell below the long-term average.

"Are German companies amongst the first market participants who recognize that there is something fishy going on out there?" asks Alexandra Bechtel, analyst at Commerzbank.

German corporates have a strong track record in predicting currency moves, consistently outperforming hedge funds and other currency managers in recent years.

After the ECB’s OMT announcement in September, German companies went long EURUSD for the first time in 13 months. However, that enthusiasm waned in October, the Commerzbank survey says.

In November, outlook among German corporates for the health of the EURUSD over the three-month horizon fell from +7% to -15%.

The change in short-term sentiment brings the companies in line with speculative EURUSD positioning on the Chicago Mercantile Exchange after the IMM market players trimmed their short EUR positions over October.

 EURUSD positioning of speculative and strategically
orientated market participants

 
 Source: Commerzbank

However, during the next six months, the outlook among the companies on the health of the EURUSD trade saw the number of German corporate bears decrease by 9% to -16%.

And, over the next year, the number of EURUSD German corporate bears fell markedly by 23% to only -1%.

Given their track record, the increased bearishness among this market segment is surely noteworthy.