Euro Clobbered as Investors Take Out Largest Negative Bet Positions Seen Since 2012

Data from the CFTC, which accounts for non-commercial speculative positioning on the forex markets, shows sentiment is increasingly negative.

Investors ramped up their net short positions on the EUR and JPY especially in the latest week and kept net short positions in the CHF little changed.  

Commenting on the data released ahead of the new month is the FX Research team at TD Securities:

"Investors clobbered the EUR again, boosting net shorts to –150.6k contracts (from –138.8k last), the largest bet against the single currency since 2012.  

"The absolute EUR crisis peak short from June 2012 was –214k contracts so there is still some margin for investors to extend positioning—which has likely been the case this week as focus on ECB policy prospects intensifies."

PS: All the levels mentioned here spot market quotes, your bank will affix a discretionary spread to the figures. In order to get as close to the market rate we suggest consulting an independent FX provider, the delivery of up to 5% more currency is possible in many instances.

Betting on a Stronger US Dollar Moving Forward

Meanwhile, the theme of a stronger US Dollar becomes increasingly popular with forex traders.

"CFTC data for currency futures through the week ending August 26th showed that investors and speculative accounts continue to bet big on an appreciating USD," say TD Securities.  

Furthermore, "offsetting USD short bets were extended modestly against the GBP, AUD and MXN but, in aggregate, IMM players are now holding the biggest bullish bet on the USD since mid-2013, equating to USD30.5bn."

Be aware though that positioning is starting to look somewhat extended, "but delving back a little further into the past suggests that aggregate USD longs or shorts nearer USD40bn are more indicative of a positioning extreme," say TD Securities.

Euro to Pound: More Losses?

In August, sterling fell prey to profit taking, as the UK data turned a bit mixed.

Especially ongoing low wage growth helped BoE’s Carney to fend off calls for early rate action.

Piet Lammens at KBC Markets reckons:

"At the same time, the BoE minutes showed that two members voted for a rate hike in August. EUR/GBP settled in a 0.7875/0.8035 consolidation range.

"EUR/GBP touched a correction top in the 0.8035 area mid-August, but global euro weakness prevented a further rise. This area is now a new strong resistance for the EUR/GBP cross rate. We reinstalled a sell-on-upticks approach. The 2014 low (0.7874) is the first important support. We maintain our LT bearish view on the euro with EUR/GBP 0.7755 as a target."

A Great Month for the US Dollar

This has been a great summer for the US dollar as investors continued to buy the currency in the face of stronger and weaker economic reports.  

Manufacturing activity in the Chicago region accelerated significantly and consumer confidence as measured by the University of Michigan consumer sentiment survey was revised higher.  

"As we noted all week, the voracious demand for dollars stems not from the impressiveness of the U.S. economy but from the lack of better alternatives," says Kathy Lien at BK Asset Management.  

At bare minimum, the U.S. economy is moving in the right direction with a central bank that is in the process of unwinding and not boosting stimulus.

Looking ahead Lien says:

"The Non-farm payrolls report is hands down the most important piece of data on the U.S. calendar and by all counts, job growth is expected to accelerate.  

"Weekly jobless claims printed below 300k three out of the last four weeks with the 4-week moving average of claims consistent with +200k job growth. Manufacturing and non-manufacturing ISM numbers are also scheduled for release along with the Beige Book. "