CFTC Positioning Report: EUR net longs continued to shrink

These are the main highlights of the CFTC Positioning Report for the week ending October 15.

Speculative net longs (non-commercial) in the single currency retreated for the third consecutive week to levels just above 17K contracts amidst a multi-week pullback in the long/short ratio. On the other hand, commercial net shorts (hedged funds) shrank for the sixth week in a row, all against the backdrop of a modest decline in open interest. EUR/USD intensified its bearish tone during that period, breaking below the key support at 1.0900 in the wake of the dovish cut by the ECB. The downtick in open interest, however, suggests that a near-term contention could be shaping up.
Net long positions in the Japanese yen among non-commercial traders continued to shrink for the third week in a row, dropping to nearly 34K contracts. On the other hand, commercial net short positions stayed relatively unchanged, while open interest increased for the second consecutive week. Meanwhile, USD/JPY has maintained its gradual upward momentum since mid-September, recently testing the key 150.00 level.
Speculators trimmed their net longs in the British pound to three-week lows around 85.8K contracts amidst an acceptable pullback in open interest. During that period, GBP/USD navigated an inconclusive range above 1.3000, although always within the current multi-week bearish trend.
Non-commercial players increased their net short positions in the US Dollar, pushing them to a two-week high of about 2.1K contracts, even as open interest continued to decline. Meanwhile, the US Dollar Index (DXY) stayed strong in its monthly recovery, pushing past the 103.00 barrier and refocusing on the 200-day SMA near 103.80. Notably, the Greenback has posted daily losses in only one session so far this month.
Speculative net longs in Gold advanced to two-week peaks near 285.6K contracts amidst a decent uptick in open interest. Gold prices gathered extra steam and challenged the area of all-time highs around $2,670 per ounce troy following geopolitical fears and prospects of further global easing.

Euro FAQs

What is the Euro?

The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

ECB FAQs

What is the ECB and how does it influence the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

What is Quantitative Easing (QE) and how does it affect the Euro?

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

What is Quantitative tightening (QT) and how does it affect the Euro?

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.

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