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Foreign Exchange

Speculators extend record euro short positions

Traders on the Chicago Mercantile Exchange took their bets against the euro to fresh record levels as the single currency rallied last week.

Evidence emerged that investors were still wary over eurozone sovereign debt as positioning data from the CFTC showed traders took the rally in the euro as an opportunity to get shorter of the single currency, raising the value of their short positions in the currency by $2.4 billion to an all-time high of $27.9 billion by January 24. That was the fifth consecutive week that investors pushed short euro positions to fresh highs. Short euro positioning as a percentage of open interest rose from 53.2% in the previous week to 54.3%, close to record highs and demonstrating strong investor conviction in the position.

Analysts said market positioning was likely to have added momentum to the gains in EURUSD seen last week.

“Short covering at the end of the week likely accelerated the push higher in the euro, and the risk is there is more to come,” says Camilla Sutton, chief currency strategist at Scotia Capital.

 Euro short positions at record levels

 
 Source: CFTC, Data Insight &Scotia FX


Todd Elmer, strategist at Citi, said the data fitted in with the bank’s proprietary PAIN index on hedge fund positioning, which hit a multi-year low last Monday, implying that some investors were inclined to add to their short positions on a bounce in EURUSD. Elmer said while a recovery in Citi’s PAIN index in recent days showed less inclination from investors to fight the move in the spot market, it still remained well in negative territory.

“Altogether, positioning still looks sufficiently skewed such that euro downside on the disappointment in progress in combating the sovereign debt crisis should be limited,” he said.

Meanwhile, the CFTC data showed commodity currencies were in demand ahead of last week’s Federal Reserve meeting, given the expectations of further easing, which could support risky assets.

The Australian dollar replaced the yen as the currency with the largest net-long position, while the Canadian dollar and the Mexican peso also attracted buying interest.

Investors trimmed long positions in the yen as figures showed Japan recorded its first trade deficit since 1980.

 Net long (short) non-commercial positions

 
 Source: CFTC, Data Insight & Scotia FX
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