What Will Happen to the Euro When the Eurozone GDP Numbers Come Out?

NEW YORK (TheStreet) -- Thursday may be a big day for the euro.

Figures on second-quarter gross domestic product for the eurozone including Germany and France will be released along with accompanying data on inflation, or disinflation as the case may be.

For a couple of months now, Mario Draghi, president of the European Central Bank, has been hoping for a decline in the value of the euro against the dollar. Soon after the June meeting of the ECB, the euro fell below $1.36.

At that time, hedge funds had already begun to short the euro.

On July 30, the value of the euro dropped below $1.34. At that time, there were expectations the euro might drop to as low as $1.32 sometime this year.

By the time of the last meeting of the ECB there were further expectations that the euro might even fall to $1.30. On Wednesday, the euro was trading around $1.3370.

Since then all the news coming out about the state of the various national economies in the eurozone have indicated that Europe may be much weaker than it had been thought. So today's data loom large.

Apparently, the hedge funds and other large speculators believe the data on the economy of the eurozone will come in very weak. These fund sources have, according to the Commodity Futures Trading Commission, bet more for a decline in currencies against the euro that at any time in the past two years.

The problem with putting in bets at this stage is that a lot of the "bad" economic news is priced into the market. For the market value to fall further, the economic news would have to be even worse than expected.

If the data indicate the hedge funds and others have been too pessimistic, then the value will rise. This is apparently what happened in two earlier situations when large bets had been made for the decline in the euro -- May 2010 and June 2012. In each case the value of the euro rose rather dramatically after reaching relatively low levels.

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