IMMs: euro longs collapse – further room to fall, Citi suggests

The latest Commitment of Traders’ report from the US Commodity Futures Trading Commission shows a fall to 12,416 net long positions for the week ended July 12, compared with 43,194 the previous week.

Citi FX strategist Todd Elmer highlights near record levels of activity in the bank’s proprietary PAIN index, which tracks the correlation between moves in the euro and hedge fund returns.

Given that the euro traded close to recent lows last week, the index’s movements suggest large-scale euro buying on market dips among hedge funds, Elmer writes.

He suggests that there might therefore be an overhang in long positions on the euro, which could be flushed out should the spot price dip, potentially exacerbating a fall. “Given this overhang, we continue to favour short positions on EUR, particularly vis à vis CAD [the Canadian dollar],” he concludes.

Elsewhere in CME currency trading, short positions on the dollar increased modestly, from 101,300 on July 5 to 106,941 on July 12. The US dollar’s net position change was largely due to a decrease in bearish sentiment on the Japanese yen and UK pound, RBC Capital Markets says.

The rise was not mirrored by a fall in the level of InterContinental Exchange’s Dollar Index, which tracks the dollar’s value against a basket of currencies. The index actually rose slightly week on week (see graph), indicating a rise in the dollar’s value. RBC pins the move on a weaker euro, by far the heaviest-weighted currency the index tracks.

There was a renewed risk-on tone among the commodity currencies, as Canadian, Australian and Kiwi dollar longs increased modestly. Mexican peso longs jumped for the second week in a row, rising from 82,0944 to 98,447.