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Foreign Exchange

Speculators lift bets against euro to fresh highs

Positioning data from the CFTC showed speculative investors on the Chicago Mercantile Exchange have raised their bets against the euro to record levels.

Net short euro positions on the CME rose by 16,290 contracts in the week to January 10, to hit an all-time high of 155,200 contracts. That took the net value of bets against the single currency to $24.9 billion. Furthermore, short euro positioning as a percentage of open interest stood close to record highs at 52.7%, demonstrating strong investor conviction in the position.

 Speculators extend short euro positions

 
 Source: CFTC, Data Insight & Scotia FX


Analyst said the sheer size of the positions suggested that the euro was open to bouts of short covering. “With the market increasingly positioned against the euro, the risk shifts from a further build out of shorts to the risk of short covering, which would accelerate a sudden euro rally,” said Camilla Sutton, chief currency strategist at Scotia Capital.

She said the week on week change in short positions was slowing, implying that momentum was waning, while the potential for additional long covering had declined with investors cutting their long positions by 26% over the week.

“We expect the euro to trend lower, but the data suggest we are moving closer to a period of rest,” added Sutton.

Meanwhile, investors added slightly to their short positions in the Swiss franc.

Analysts said since the figures included two full days of trading after the resignation of Swiss National Bank chairman Philipp Hildebrand, they implied that investors were not betting on a change in the central bank’s currency policy and its determination to impose the SFr1.20 floor in EURCHF following the change in leadership.

“Hildebrand’s resignation from the SNB has sparked a discussion as to whether policy will change,” said Jane Foley, strategist at Rabobank. “The maintenance of Swiss franc

shorts suggests speculators do not subscribe to this view.”

 CHF positions little moved after Hildebrand's departure from SNB

 
 Source: CFTC, Data Insight & Scotia FX 

Elsewhere, investors reversed some of last week’s dollar selling, net buying $1.39 billion and bringing the value of total net long positions to $17.87 billion. The market is now long USD against every currency listed on the IMM barring AUD, NZD and JPY.

There was decent buying interest in the commodity currencies. The AUD net long position rose by 7,000 contracts, breaking the 50,000 mark for the first time since September while market more than doubled its NZD long exposure, net buying 2,600 NZD long contracts, bringing the Kiwi long position to over 5,000.

However, bearishness in CAD has not receded as investors net sold more than 5,000 contracts, the second largest increase in short positions after the EUR. This brings the CAD net short to 28,649 – now the third largest short position after EUR and GBP.

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