The negative sentiment towards the EURUSD among hedge funds and other large investors reached an all time high last week. The recent data from the CFTC covering the week ending May 15 saw them selling a net 29.9k contracts of EUR futures representing a value of USD 4.8 billion. This brought the net EURO short through currency futures and options to a new record of 173.9k contracts (USD 27.9 billion).
This development will undoubtedly raise the risk of a sharp correction, especially after having seen the EURUSD failing to break the January low last week. A further change in sentiment could now leave the EURUSD exposed to a potential short covering rally, something which we saw early signs of last Friday.
The result of the EURUSD selling and continued selling of especially the AUD saw the net dollar long reach a new record of USD 28 billion. Short JPY positions were trimmed again as the risk-off mood benefitted the currency which has now seen its short position halved since the low point in March.
The commodity currencies, especially the AUD, continue to lose favor among investors as China slows and the currency dropped below parity for the first time in five months. The net long has now almost been wiped out leaving CAD on top among the commodity currencies.
Ole Hansen
SAXO BANK