EUR/USD has reached a level expected to provide a great deal of support, but the pair is slowly sliding and the ineffectual bounces seen so far are a very bearish sign.
Speculators are short but not very short, and the break to multi-year lows will encourage traders to bet bigger on a drop .
Spec shorts are at least 15 billion euros shy of levels that have previously led to a reversal.
Yet it's the likely changes in non-speculative flows that could hurt euro more.
Non- speculative traders will have to factor in a weaker value, reducing the weight of the single currency in baskets.
If central banks pare euro reserves, it could have significant impact.
The rising level of risk aversion is also propelling the dollar higher versus emerging markets currencies, and any interventions to stem these moves will weigh on the euro, too.
Interventions are usually followed by reserve rebalancing, buying dollars back and selling other liquid currencies like euro and yen.
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