23 January 2012 at 8:34 GMT
Hedge funds and large investors ignored the increased risk of pull-back in the euro. As of last Tuesday they added another 5,000 contracts bringing the net short to 160,030 contracts, the most on record since the currency made its debut in 1999. The short euro position as a percentage of open interest rose to a near record of 53.2 percent which demonstrates strong investor conviction in the position.
This major record euro short position also raises the risk of aggressive short covering moves in the weeks ahead just like the one seen last week. The short position will have been reduced somewhat but the line in the sand for a major capitulation of short positions, which is expected to lie above 1.30, was not breached and new selling emerged ahead of the weekend.
The selling of euros continues to benefit primarily the dollar with the long position rising for a second week in a row reaching USD 18.9 billion. The market has been net long of dollars since September 2011 and is long dollar against every other currency on the IMM except JPY, AUD and NZD.
The long AUD position reached a five month high, as the key resistance level was breached.
Sterling short positions increased again after the Bank of England announced additional Quantitative Easing through the purchase of Gilts while the CAD position remained entrenched in short territory despite improved US economic data and relatively high oil prices.
Background information: The Commitments of Traders is a report issued by the Commodity Futures Trading Commission every Friday with data from the previous Tuesday. It comprises the holdings of participants in various U.S. futures markets split into "commercial" and "non commercial" holdings. The non commercial or speculative holding are typically institutional investors such as hedge funds and CTAs. Analysts and investors follow changes in these positions because such transactions can reflect an expectation of a change in prices. The IMM, which is a division of the CME, stands for International