Most expect the euro to fall against the dollar regardless of whether the ECB raises rates

　　Hedge funds have taken a further bearish view on the short-term outlook for the euro ahead of next week's interest rate decision by the European Central Bank.

　　In one month, hedge funds have cut 90 per cent of their net long euro positions in anticipation that the ECB will be forced to halt its tightening cycle early, position data show. And economists see only a 40 percent chance of a quarter-point rate hike on Thursday - while inflation remains high and well above the ECB's 2 percent target, there are growing signs that the economy is deteriorating and the euro zone (EARN) may not be able to withstand higher rates.

　　There is a wide divergence of expectations among institutions on whether to raise rates next week...

　　Dale Powell, an economist at Bloomberg Economics, said: "We forecast that the board will raise rates by 25 basis points, bringing the deposit rate to 4.0%. This will be the last rate hike this cycle."

　　Grace Peters, head of investment strategy at JPMorgan, said the market should also not underestimate the ECB's determination to fight inflation, and I think the ECB will raise rates again next week, which will support the euro. He told Bloomberg TV: "I would prefer to buy the euro at current levels. The current environment makes it easy for investors to be short on the euro, but the ECB has only one mandate, and that is prices. This may be the last rate hike of this cycle, but the ECB must remain hawkish. There is room for the euro to appreciate."

　　Luke Hickmore, investment director at Abrdn Investments, said: "I'm not sure the European economy can withstand more rate hikes. There is a high probability of stagflation, which is negative for almost all types of assets, including the euro."

　　Janet May, head of market analysis at Royal Bank of Canada (RBC), said: "The weakness of the euro makes sense and I think the ECB will pause. It would be a neck-and-neck choice. If we stop raising rates, the euro could weaken further."

　　In any case, the euro will fall further...

　　This provides a key argument for shorting the common currency. The euro has fallen nearly 5 percent since mid-July, its longest weekly decline since 2014. Market participants' outlook for the euro has been sharply reduced, with analysts predicting a year-end level of 1.09 against the dollar. A few weeks ago, it was 1.12.

　　Anthony Forrest, head of G-10 currency spot trading at Nomura International, said: "Most hedge funds are bearish on the euro and generally bullish on the dollar. For most investors, economic data will not rebound, but inflation will remain sticky. They're also worried about energy prices and the state of China (CHN)."

　　Theos Vakidis, head of G-10 currency strategy at Bank of America, said that the euro's moving average and volatility indicators have been sending continued bearish signals. He wrote in a note: "This suggests that the euro's downtrend against the dollar can continue. Data from the eurozone have been surprising in recent months, particularly when compared with those from the US. The German [GER] numbers are very bad."