05.06.201403:45:30UTC+00ECB measures open doors for trade profits

Even as the European Central Bank (ECB) contemplates how to revive a gloomy eurozone economy, some investment managers are getting excited at the prospect of major profits.

By the end of the day, members of the investment and trading world who have been anticipating an announcement from the ECB will finally be given their wish. For those part of a global macro hedge fund, however, the news is just beginning.

Ever since ECB President Mario Draghi commented in May that monetary policy to respond to the lower than expected inflation rates in Europe can be expected, hedge fund managers that look to central bank announcements for investment tips have become more active in the foreign exchange market. At the top of their list is the selling of the euro in anticipation of a major drop in its value when measures are made public.

According to figures released by hedge fund investor Lyxor, global macro hedge funds have increased their short positions for the EUR/USD pair to 18% of their net assets from an original 14%. The decision has so far been rewarded as the 18 country shared currency has gone down to its lowest value in three months to $1.36 from $1.40 near the start of May.

This added confidence is brought on by the belief that Draghi will be forced to resort to major policy adjustments to combat a sub-1% inflation that he has called the danger zone that can drive the euro even lower. These include setting bank interest rates, already at a record low of 0.25%, in to the negative to give small businesses more access to financial support by charging banks for storing funds overnight.

 Although, the situation might not be as rosy as hedge fund participants. A risk lies in the success of the measures that the ECB will take should increased investments into the region happen, strengthening the currency and hurting their profits.