Original title: why is the euro still bearish when Draghi takes office as Italian prime minister to lead the European market carnival?

On February 7th, market analysts John Ainger and James Hirai wrote that although it was reported last week that former European Central Bank President Draghi had succeeded in boosting the euro zone bond market as Italy's next prime minister, it could not boost the strength of the euro because of the greater impact of the epidemic on the euro. Soci é t é G é n é rale said investors were reducing their long positions in the euro, while Aberdeen Standard Investments predicted the euro would fall to 1.17.

Italy's bond market continued to break records last week after news that former European Central Bank President Jean-Claude Draghi became prime minister-elect, but the euro fell for a second week, falling below 1.20 at one point. This suggests that the problems of the eurozone may be more entrenched than the fate of Italy, its third-largest economy. It may also suggest that Mr Draghi is not a panacea for the region's challenges.

James Athey, a fund manager at Aberdeen Standard Investment, said the only factor supporting the euro was actually the somewhat hawkish ECB, who predicted that the euro could fall to 1.17.

A return to calm in Italian politics after a upheaval usually gives the euro a boost. But this is not the case this time, even though Mr Draghi has been president of the ECB for nearly a decade and is largely thought to have saved the eurozone.

Foreign exchange investors are realising that the epidemic is having a greater impact on the euro.

Europe was left behind by the United States and Britain in the vaccination competition. Hopes of a rapid recovery in these countries have led to a sharp rise in bond yields, causing money to flow out of the euro and into dollars and pounds.

The black, red and blue lines in the chart below represent 30-year bond yields in the UK, France and Germany, respectively. While the global bond yield curve is steepening, Europe is not.

Societe Generale pointed out that investors are not bullish on the rise of the euro and are reducing their long positions. A three-month risk reversal showed that traders were most bearish on the euro against the dollar since June 2020.

Kit Juckes, a strategist at Soci é t é G é n é rale, said of the euro: "the US economy is growing better than Europe, which is a catalyst for investors to weaken their long positions in the euro." It is impossible for us to expect the euro to strengthen further under such circumstances. "

(daily chart of EURUSD) at 16:04 Beijing time on Feb. 8, EURUSD was trading at 1.2044 GBP 46.