German corporates have never been so bearish about euro

Commerzbank, which surveys the FX expectations of its main export-oriented corporate clients each month, says euro bearishness on a three-month horizon among this client segment rose to 66% in May – up from 36% in the April survey. The euro bull camp during the same time period shrank from 22% to a mere 8%.    Commerzbank’s FX Compass Index, which depicts the number of euro bulls minus the number of euro bears over a three-month horizon, fell to a record level of -58 points.   The bank said several hundred corporate clients participated in the survey.

“Never before have German companies with foreign-trade interest taken such a clear stance,” says Alexandra Bechtel, FX strategist at Commerzbank. The development not only illustrates a parallel move between speculative and strategic market participants but also shows that the level of euro scepticism amongst corporations might have caught up with the speculative community, says Bechtel.

The heightened uncertainty surrounding Greece’s future in the eurozone – and the possible contagion effects a Greek exit could cause – has also led to a re-orientation of the six-month outlooks of German companies, the survey shows. In March and April, the majority of German corporates were positioned neutrally, but this month displays a clear euro short position.

EURGBP bearishness remains

The survey shows sentiment towards the pound might have improved among corporates during May, despite a downbeat Bank of England inflation report and the vulnerability of the UK to an escalation of crisis in the eurozone.

Since the last survey, the number of EURGBP bears amongst German companies has risen substantially for the three-month horizon.

Almost 50% expect further EURGBP downside with just 10% expecting a rise. Last month, 21% expected a decline in EURGBP during the next quarter and 23% expected an upward move.

“However, this is probably caused mainly by an EUR weakness rather than GBP strength,” says Thu Lan Nguyen, currency analyst at Commerzbank.

“After all, the Bank of England has left the door wide open for further measures of quantitative easing, which it would be likely to pursue should a further escalation of the debt crisis have a negative effect on the economic outlook for the UK.”