Short EUR positions at record level

Danske Research Team from Danske Bank A/S at 02/08/10

 

The latest IMM data cover the week from 26 January to 2 February. A broad-based flight from the riskier currencies coupled with Euro-zone sovereign debt fears have seen non-commercial investors add to their net long USD positions, which have now reached the highest levels since March last year. Concerns over a possible debt contagion in southern Europe continue to spook investors, causing a further build-up of short EUR positions. As a result, short EUR positions have grown to USD7.6bn, which marks a record for the series. While this could present an upside risk to EUR/USD in case of a position squeeze, the timing of a possible correction is highly uncertain (cf. the build-up in short USD positions in 2009). Coinciding with the past weeks’ setback on equity markets, and the difficult environment for risky assets in general, positioning in JPY has turned and is now net long. Also, speculative long positions in AUD, NZD and CAD have been reduced. Long AUD positions in particular have been taken off, likely induced by the surprise decision by the RBA to leave the cash rate on hold. Thus, the Aussie is no longer the favoured “long trade” in G10 FX. Speculative investors are again net short CHF, as signs of intervention indicate that the SNB may still act to weaken the Swiss Franc.