IMM positioning: Positioning indicates that upside EUR/USD risks remainIMM positioning: Positioning indicates that upside EUR/USD risks remain
By: Danske Bank
- The latest IMM data cover the week from 18 to 25 May.
- It looks like the big correction in EUR/USD two weeks ago (taking the pair from a 1.2144 low to test 1.2700) was largely driven by short covering – i.e. short EUR positions being unwound. Yet the latest IMM data show no reduction in short EUR positions. So why is that? The likely explanation is that non-commercial investors added significant amounts of EUR shorts as EUR/USD moved above 1.26. This fits well with the fact that EUR/USD moved quickly lower again at the beginning of last week – to trade all the way back at 1.22 on Tuesday, when the IMM data were collected.
- With the market still significantly short the euro, risks also remain skewed to the upside in EUR/USD from a position squeeze. Hence, any potential shock sending EUR/USD higher could trigger short covering and a violent move higher - as was the case two weeks ago.
- The past week also brought an accelerated unwinding of long commodity currency positions. Net longs in the high-beta AUD, CAD and NZD were all scaled back by more than 15 percent of open interest, as risky assets in general remained under pressure. With net longs now at less stretched levels (and money markets in all currencies having seen a significant re-pricing) there should be the potential for a strong recovery in all three currencies, should risk appetite improve going forward.
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