30 January 2012 at 9:16 GMT
Despite the recent EUR rally, which has seen it rebound above 1.30 versus the dollar, hedge funds and large investors continued to increase their bearish view on the European currency in the week to last Tuesday. They net sold another 11,000 futures contracts taking the total short position to a new record of 171,400 contracts, the equivalent of EUR 21.4 billion. This was the fifth week in a row that EURO short positioning reached a new record.
The conviction rate among the above investors rose to a new five year high of 54 percent. This is measured by taking the short EUR positioning as a percentage of open interest in the futures contract. Any renewed selling of the Euro from current levels could potentially be met by profit taking which would cushion the fall.
The net dollar long position fell slightly to 18.7 billion with the main beneficiaries of the euro selling being most other currencies apart from JPY. The AUD position rose by one quarter and is beginning to look a bit stretched being the second largest long position after the dollar. The MXN position switched from net short to net long after investors net bought 24.7k contracts while CAD and GBP both saw short positions being reduced.
Long JPY positions were cut by one quarter ahead of the FOMC meeting but given to dovish outcome and subsequent moves in the market these longs were most likely rebuilt towards the end of last week.
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 Monetary Market and it is where currency futures are traded.