Largest net short speculative EUR position ever!
SEB Risk appetite index (RAI)
Risk appetite continued to fall and is now slightly lower than at the start of 2012. Summary of the speculative accounts in the Commitment of Traders report for the period 2 – 8 May: Most extreme positioning: Net short EURLargest change: Increase in net short EUR, CHF and decrease in net long AUD.
Speculators reduce their exposure for a third consecutive week. Aggregated speculative share of open interest continued to fall reflecting speculators continuing scaling back on FX exposure due to high uncertainty/low risk appetite.
The net long aggregate USD position increased massively, just as in the previous report. The net position is at 154,118 contracts, which is the highest seen in 52 weeks, up from 91,033 (63th percentile) last. The change was large and broad based as seven out of eight currencies saw falling positions versus the greenback. This development supports the notion that the period 9-15 May continued with the same risk-off market sentiment as the prior reporting period (2-8 may).
Largest net short EUR position ever! The increase in the net short EUR position was the largest positional change among the currencies once again. Speculators are now more net short EUR than they were in January 2012 right before the Greek situation was (temporarily) solved. However, EUR/USD is at a higher level. An interesting detail in the positioning data is that EUR is the only currency in the latest CoT report to show increasing volume, a rise that comes solely from added short contracts. In this aspect the short positioning will probably continue to increase as will the downside move in EUR/USD spot.
The net long AUD position fell to the lowest level since March 2009. Decreasing net long AUD was the third largest change in the report. The net long AUD position has fallen rapidly in the latest three reports from the 57th percentile (52,280 contracts) two weeks ago to the 18th percentile (25,104 contracts) last week and now at the lowest in not just 52 weeks but also since 2009. Now the question is how much further we can expect the net position to fall. In the two previous reports the AUD sentiment was clearly negative as the smaller net long position was driven by both increased shorts and decreased longs. However, this time both short and long contracts were reduced albeit long ones to a greater extent. Speculators are thus already getting a bit more cautious to bet on AUD continuing lower.
Positioning following GBP/USD down. The GBP/USD continued lower during the reporting period and the net long position was also reduced but to a rather limited extent (from 25,339 to 25,021 net long). Looking into the details they reveal that positioning probably is less good for judging the sentiment as the current extreme uncertain environment has forced speculators to reduce their FX exposure. Thus both long and short contracts were reduced (but long ones more so). In a more normal market we would expect that price action and excessive long position would rather have rendered added short contracts.
FX-O-meter indicators:
The Trend Trade Trigger model (with YTD return +12.8%) suggests exiting short AUD/USD (+1.8%), staying short NZD/USD (+3.2%) and entering short EUR/JPY (for details see page 5 & 23). USD/SEK and NOK/SEK are the most stretched currency pairs. Both with stretch scores above two standard deviations, which historically has been a reliable indicator that a pullback or at least pause in the move is about to take place.
Click here to read the full report: Speculative Position 05.21.12
SEB tech team