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Foreign Exchange

IMM: investors raise EUR shorts on implicit ECB support

Speculators on the CME increased their short positions in the EUR, after the European Central Bank’s (ECB) decision to lower its deposit rate to zero signalled its implicit support for a lower euro.

Traders speculated that the main reason for the move to a zero deposit rate was to try to activate an estimated €800 billion of deposits throughout the European banking system. Given the operational costs of administering these deposits, investors are in effect paying to leave their money on deposit.


The ECB would not have done this without the specific aim of a lower euro, some traders said last week. The latest Commitment of Traders report, issued by the Commodity Futures Trading Commission, shows investors net sold 19,528 EUR contracts in the week to July 10. That increased the value of bets against the single currency by $2.3 billion to $25.3 billion.


 EURUSD shorts gain extra momentum
 
 source: Scotiabank, IHS, CFTC

The IMM positions are indicative of the increasing momentum for downside in the EURUSD, with the currency pair reaching a two-year low last week. Given the current momentum, it is likely that the previous record short of $33.4 billion could be reached by the summer recess in August. This is further underpinned by the near unanimous view that the EUR is a funding currency. It is now the second-lowest yielding currency.

Société Générale last week produced a survey in which it asked 6,700 clients where they would consider buying EURUSD. The medium answer was $1.15. (link)

The other notable move in positioning on the CME was in AUD, which remains the currency in which the largest net long position is held against the USD.

A $982 billion rise in the value of net long AUD positions was driven by an increase in gross long positions and some short covering. That saw the net long AUD position grow from $961 million to $1.943 billion.

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