Euro short-squeeze stage set as currency tests three-month high
Euro bears are holding tight, setting the common currency up for a potential short squeeze that could turbocharge a burgeoning rally.
Hedge funds and other large speculators have been adding to their euro short positions, according to the latest data from the Commodity Futures and Trading Commission. Having reached a 19-month peak in August, the fast money had pared its net short holdings for three consecutive weeks. But it’s edging up again. The euro reached a three-month high in the spot market on Monday.
Meanwhile, a Citi gauge that infers positioning by matching the returns of funds that invest in currencies with daily exchange rates between the world’s most-traded pair is signaling managers still hold sizable short-euro, long-dollar positions.
The gauge has been negative since late March — a possible indicator that FX funds made money when the euro weakened by going short.
The divergence in recent weeks signals that funds may be holding tight to short positions.
Of course, a full picture of over-the-counter holdings is unavailable, and reported data can sometimes be muddied by spread trades and the like. But the information can still provide clues as to whether the wind is changing.
Euro bears are looking increasingly brave — or perhaps out of step.
The common currency was little changed on Tuesday, after brushing its highest intraday level since mid-June on Monday when it gained as much as 0.6 percent after European Central Bank President Mario Draghi said he sees a “relatively vigorous” pickup in underlying inflation — a potential precursor to higher interest rates in 2019.
Source: Hellenic Shipping News
