Data on IMM futures market positions showed USD net longs surged from 9,573 on September 13 to a 13-month high of 71,740 on September 19, as the dollar index reached an eight-month high of 78.9. In the past month, USD net positions have undergone a swing of 200,000 contracts, the biggest since early August 2008, according to RBC.
The leap in dollar longs is at the expense of virtually all other currencies, most notably the euro and sterling, where short positions in the two currencies reached record values. EUR shorts rose from 54,459 on September 13 to 79,460 on September 19. While the notional value of EUR positions was at a record net short of $8.7 billion, that will have increased because this position was in place when the EURUSD was trading at 1.37, and it is now below 1.35.
| Leveraged funds net-EUR position |
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| Source: Citigroup |
“The general pattern of these leveraged funds is to add to winning positions, so we presume the short position is now bigger than this data,” says Citi FX strategist Greg Anderson. “The long EUR side has been as big as $19.5 billion, so we would not argue that the size of EUR shorts can’t grow.” Similarly, GBP remained heavily sold, with net shorts rising to 59,755 on September 19, up from 26,193 the previous week. The USD notional value of GBP positions rose to a net short of $4.4 billion, also a record value for sterling.
| Leveraged funds net-GBP positon |
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| Source: Citigroup |
Australian dollar longs also fell, from 36,934 to 23,095, with the notional equivalent being reduced to $3.8 billion from $7.2 billion the previous week. Although well below the surge in USD holdings, the yen was the only other G10 currency to register a rise in net longs, going from 34,955 on September 13 to 45,617 on September 19.
Overall, the USD registered an aggregate net long of $3.3 billion. Although this seems modest compared with some of the net short USD positions, which routinely passed $25 billion, the fact that it is positive for the first time in 14 months signals the reversal of risk sentiment in the market. “The fact that IMM leveraged funds are net long USD, when the USD has been viewed as the main funder for over two years, shows how bearish the FX market has become on risk. A rally of the USD is clearly expected and for now the speculators have been right,” says Anderson.