Investors and speculators continued to sell Euros into the new year and it has now become an issue of selling the European currency against most other currencies. Last week an additional 11.03K contracts were sold bringing the net EUR short position to a new record of -127.9k contracts, the equivalent of EUR 16 billion. Just how convinced about the direction investors have become can be seen in the positioning as a percentage of open interest which now stands near record highs at 49 percent.
Once again investors should be a bit concerned about this one sidedness in the market as it increases the risk of the occasional pull back – especially on any positive news from European politicians with regards to the debt crisis.
Dollar longs were reduced by USD 4.7 billion to USD 16 billion, largely due to a substantial increase in USDJPY shorts and to a lesser degree AUDUSD longs. Domestic data from Japan indicates that retail investors there are (still) long EUR 8 billion against the JPY and professional investors are looking for a capitulation move that could trigger further JPY strength, both against the dollar and the euro.
Commodity currencies saw mixed fortunes with investors continuing to add long exposure to the AUD while the CAD positions remain in short territory which seems irrational considering the current demand for commodities and commodity currencies in general.
Ole Hansen
SAXO BANK