Nov 27 (Reuters) - Before EUR/USD can sustain a move in either direction, traders may need to decide what's safest, with their current indecision threatening to trap the pair on very familiar ground.
Both the euro and dollar are considered safe and, while the greenback is the world's reserve currency and investment in it greater, no investment centred on just one asset is advisable. The need to spread risk can sometimes fuel more demand for the single currency than the greenback, even during the most risk averse periods.
This seems to be the case now, with a much cheaper euro rebounding from its lowest level in almost two years following a rush to buy dollars that resulted from rising concerns about a trade war.
In that period traders piled back into euro short positions, purchasing around $5 billion in the wake of the U.S. election.
Where the sudden plunge to 1.0332 excited traders, the subsequent rise above 1.05 will probably encourage them to pare risk, and for those that can do so, to book profits.
Traders usually pare positions at the end of the year, meaning a bigger drop might not happen until next year - and perhaps only then if traders decide cash held in dollars is the safest.
The yen could surprise traders next year.
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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
((jeremy.boulton@thomsonreuters.com))
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