IMM traders add to EUR shorts, USD longs surge

Danske Research Team from Danske Bank A/S at 02/15/10

 

The latest IMM data covers the week from 2 to 9 February. Concerns over fiscal sustainability continue to be a key driver of financial markets and have seen the flight from the euro, and pro-cyclical currencies in general, continue. European debt woes continue to attract the market’s attention and speculative investors have added to the record EUR shorts seen last week. As a share of open interest, short positions have reached close to 30% which does point to an increasingly crowded trade. In turn, this could spell upside risk for EUR/USD if the positions were to be unwound. However, one should bear in mind that such positioning can stay in place for a prolonged period, and in the EUR’s case it may do so unless we see a credible solution to tackle the situation in the PIGS countries. Speculative investors continue to shed positions in pro-cyclical currencies, in particular taking off their AUD and CAD longs. At the same time, long positions in defensive currencies are built, causing USD longs to reach the highest level since the Lehman bust. Despite the ‘sell-risk, buy defensive’ sentiment reflected in the latest IMM positions, speculative investors have also added to their short positions in CHF. This seems to suggest that SNB intervention fear dominates any CHF safe-haven characteristics – a fear that we can certainly subscribe to at the current levels. Speculative investors have also added to GBP shorts, perhaps as a result of the failure of the BoE to terminate its asset purchase programme at the latest MPC meeting.