EUR still out of favour

The latest IMM data cover the week from 9 to 16 February.

EUR/USD managed to see somewhat of a consolidation last week as the Euroland debt problem dominated fewer headlines and risky assets posted a decent rebound. Still, noncommercial investors added further to short EUR positions, which have now reached a 10- year high at 30 percent of open interest.

The IMM data were collected prior to the Fed hiking the discount rate however, suggesting that short EUR positions might have been built even further. As we have argued repeatedly in recent weeks, the crowded positioning does pose a significant upside risk to EUR/USD – December's dollar rally showing just how powerful a position squeeze can be. That said, one should bear in mind that extreme positioning can be very long-lived.

Long JPY positions were cut back to 12 percent of open interest and we suspect that long JPY positions have been unwound even further, as recent price action has demonstrated how much at risk long JPY positions are from any indication of an early Fed monetary policy unwinding. USD/JPY is currently the G10 currency pair trading with the highest correlation to relative interest rates.

Coinciding with an improved risk sentiment, long positions have been extended in both CAD and NZD. In contrast, positioning remains unchanged in AUD, despite the Australian dollar actually outperforming the other commodity currencies

The IMM data

The IMM data is part of the Commitments of Traders (COT) reports published by the U.S. Commodity Futures Trading Commission (CFTC). The IMM data provides a breakdown of each Tuesday's open futures positions on the International Money Market (IMM) a division of the Chicago Mercantile Exchange. All of a trader's reported futures positions in a commodity are classified as commercial if the trader uses futures contracts in that particular commodity for hedging as defined in CFTC Regulation 1.3(z), 17 CFR 1.3(z). A trader may be classified as a commercial trader in some commodities and as a noncommercial trader in other commodities

Danske Bank
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