Heavy Selling Continues in the Euro

There was continued heavy selling in the euro, with the total open interest rising to almost 400K and the total spec short position jumping up to a record 132,099 futures and delta adjusted option contracts. The euro worked lower on the cut off date for this report, and continued the plunge in the Friday trade. We have the trade volume reports for Wednesday and Thursday in the new COT reporting report, and the OI continued to climb. This means specs are adding to their bearish euro bets.

It is interesting to note the commodity currency long continues to grow. This week the combined longs of the Canadian, Australian and New Zealand Dollar positions is up to 90.1K. Market action during the past week, continuing past the cut off for this report, was not positive for the commodity currencies. The Aussie meandered side ways and the C$ and NZ$ worked lower. Liquidation of these longs would result in USD buying.

The trend is always your friend until it ends. The reversal can then be violent even though there has been little change in underlying fundamentals. Obviously the money flow into the euro has been to the short side. How much longer will this continue?

– US Dollar Index: The long position in the DI grew marginally from 24K to 24.7K. Large spec dominate the trade in the DI and they hold 71.2% of the long side and 39.2% of the sell side. The small specs are a 4 ratio long.

– Euro (EUR/USD): Trade is the euro and the resultant OI was already large in the euro, but increased by over 10% to 397K. Most of this increase came from the large specs who increased their short position. They are now a 2.6 ratio short the euro. Trade in the spreading/option category also increased by 5.8K of delta adjusted positions. The total spec short position in the euro is up to 132K from 106.2K last week. Market action has rewarded the shorts.

– British Pound Sterling (GBP/USD): In the pound, unlike the euro, there has been some liquidation which is probably profit taking. The total OI has dropped from 278K last week to 266K. The total spec long in the pound is down to 48.2K. Just four weeks ago, spec long held over 71K contracts.

– Japanese Yen (JPY/USD): Grudgingly, it seems, the shorts in the yen keep liquidating, but this position is down to 75K, from 84K last week. Four weeks ago the spec short was 98.4K. The volatility is low and the market is coiling, getting ready for a break out.

– Swiss Franc (CHF/USD): The peg of the SF to the euro means the SF goes the same way as the euro, Specs are now short 15.1K, up from 10.8K last week. Small specs hold the bigger collective positions in the SF market.

– Canadian Dollar (CAD/USD): Specs who are now long the C$ added 2K contracts to their long. This takes their total position up to 28K. A sharp break in the C$ after the cut off for this report may be resulting in some liquidation.

– New Zealand Dollar (NZD/USD): There was little feature in this small market for the period. Specs are long and added to it taking the long up to 15.9K. After the cut off for the end of this report, the NZ central bank did their best to chase kiwi longs out of the market.

– Australian Dollar (AUD/USD): Spec longs increased their position in the Aussie, taking their total long up to 46.3K contracts. Up from 43K last week the new buying came from the small spec. The bigger position, however, remains with the large spec who is a 2.2 ratio long. Recent price activity remains confined to a narrow range.

Currency Commitments of Traders with Delta-adjusted Options and Futures Combined, data through July 22, 2014