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Euro-pessimists have only themselves to fear

There are myriad reasons to think the euro's value will decline. Regional economic activity seems to be weakening, the inflation rate is falling and the central bank is not-so-covertly promoting a lower exchange rate. Bond yields have fallen to unattractively low levels. Indeed, almost the only thing that might support the euro in the coming weeks is the ubiquity of pessimism.

The negative view shows up in the US Commodity Futures Trading Commission's weekly snapshot of speculative currency positions. Net euro short positions make money when the currency falls. The number of such positions has grown steadily since mid-May and is now at its highest since 2012, when the euro zone debt crisis was raging.

Asset managers are also downbeat. In Bank of America Merrill Lynch's August poll, a net 40 per cent say the euro is the currency they most expect to depreciate, the most negative reading for the single currency in two years.

The trend is downwards. The trade-weighted euro index has declined three per cent since March while the exchange rate against the dollar has dropped almost five per cent since May, to $1.3350. But the trade may soon become trickier, for three reasons.

First, there are fewer investors left to jump on the euro-selling bandwagon. Second, traders may be tempted to start taking profits if the momentum slows. And third, a bounce in the single currency could be amplified by the rapid unwinding of money-losing short positions.

What could create a buying scramble? As investors become more confidently negative, even little bits of good euro zone economic news could move the market. Any unexpected blow to the dollar, say from a soft patch of US data, would have the same effect. The euro is certainly likely to fall further in the coming months. But the consensus is too firm to guarantee a smooth ride.