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Foreign Exchange

IMM: net short in EUR trimmed for third consecutive week

Leveraged funds’ remained short in EUR, GBP, CAD and MXN but the net short position in EUR moderated for the third straight week, reveals the latest Commitments of Traders report.

The data, issued on Friday by the Commodity Futures Trading Commission, shows the US dollar remains the currency of choice, with net contracts rising from 111,839 on October 4 to 114,795 on October 11. The result is somewhat surprising given the dollar index lost 2.5% during the period, with several analysts expecting dollar longs to fall, given last week’s improved appetite for risk.

Although the rise in dollar longs may illustrate the continued uncertainty about the global economy, the reduction in euro net shorts suggests a moderate return of confidence in anticipation of European leaders’ ability to forge a “comprehensive plan” to end the eurozone crisis ahead of the G-20 meeting on November 3. 

The net short in euro fell from 82,697 on October 4, to 73,795 on October 11. Whilst the latest CFTC figures illustrate a reduction in the speculative community's short euro position, the market still remains heavily skewed to the downside. 


 IMM Leveraged funds' net-EUR position
 
 Source: Barclays Capital

 "Despite the reduction the market remains heavily short and our most recent flow data from last week suggests large clients in the speculative community continued to be net sellers of euros" says Sara Yates, foreign-exchange strategist at Barclays Capital. 


"With a lot of event risk still out there and a big risk of a false dawn, positioning will continue to matter in the short-term and we could see a further continuation of the short squeeze".

 EURUSD vs IMM Leveraged funds' net-EUR position
 
 Source: BNP Paribas

Investors also cut long positions in the Japanese yen, with the net long falling to a four-week low of 35,119, down from 43,462 the previous week, while bearishness in Sterling also receded moderately.


The GBP net short fell from 68,724 to 61,972, but remained above 60,000 for the third week running. The only other move of significance was the rise in the Canadian dollar net short to levels not seen since August 2008. Net shorts in CAD rose to 24,913 on October 11, up from 15,682 the previous week.

The net long in the Australian dollar saw a slight decline, from 12,911 to 10,753, in the period the report covered, while positioning in the New Zealand dollar was largely unchanged.

Elsewhere, the net short in the Mexican peso remained anchored around the 25,000 mark, while the Swiss franc’s tiny net short of 1,109 edged up to a virtually flat net long of 130.

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