The euro zone's single currency hovered around a one-year low against the dollar on Tuesday as investors continued to dump the euro in anticipation of extra liquidity in the region. However, one analyst has warned of a crowded trade that could spell pain for some investors if this downward move isn't treated with caution.
The euro hit a session low of 1.3178 against the greenback on Tuesday morning, the lowest level since early September last year. Against the Swiss franc it was trading at levels not seen since January 2013.
With a dovish speech by Mario Draghi, the president of the European Central Bank (ECB), on Friday raising the prospects that a major asset purchase program could be just around the corner, traders are almost unanimous in believing the single currency will push lower. This week, soft business sentiment data from Germany and a political crisis unfolding in France have further compounded the move lower.
Meanwhile, Wall Street speculators increased their short positions on the euro last week, according U.S. Commodity Futures Trading Commission data. This was the largest net euro short position since July 31, 2012, and this week's numbers are widely expected to reveal a similar pattern.
"(The euro) could well be on its way towards the 1.3000 level, which would be a 50 percent retracement of the move from the 2012 lows at 1.2042 to the 1.3993 highs earlier this year," Michael Hewson, a market strategist at CMC Markets said in a morning note.
Marshall Gittler, the head of global FX strategy at IronFX believes that the overall picture for the euro is to the downside and noted that a "decisive dip" below 1.3185 in the near future could see scope for extensions towards the next support line of 1.3100.