EUR: Divergent positioning across the board - Nomura

Bilal Hafeez, Research Analyst at Nomura, explains that their survey of positioning gives a mixed signal as FX-focused asset managers and equity investors are very long euros, while FX-focused hedge funds and bond managers are very short euros.

Key Quotes

Price action suggests investors are not long euros

An initial inspection of market price action suggests that investors are not long euro. Last week the euro rallied and breached 1.10. Soon after, US equities plunged over 3%, and one would have expected the euro to reverse some its gains as investors pared back their positions. Instead, the euro held on to its gains, which suggested investors were not heavily long. Admittedly, a US-centred equity shock could be viewed as dollar negative. So last Friday’s euro-area current account release was instructive – it beat expectations and the euro still saw gains, which again suggested the market was not long.” 

Hedge funds are short euros

Looking at actual positioning measures, we find that leveraged funds or hedge funds appear to be short euros. Typically, such positioning follows recent momentum, which explains some scaling back of their shorts, but the size of shorts is larger than would have been expected given broader trends in the euro since last year. This suggests scepticism on the part of this investor category.”

Real money investors are long euros

Longer-term FX investors such asset managers, meanwhile, are long euros. In fact, the scale of their longs is the largest since the financial crisis. It was longer before 2008, though. The positioning can be confirmed by the bullishness/bearishness of FX analysts, who have a similar fundamental-based approach. Currently, analysts have unwound their bearish euro views.”

Bond and equity funds have divergent positioning too

Another type of positioning to focus on is broader asset manager flows, that is, those that are not necessarily currency risk-takers. This can be proxied by capital flow data by cumulating the net flow into euro-area asset markets since 1999. On the bond side, this shows a large build-up of euro “longs” up to 2014, before this was unwound. This coincided with the euro collapsing from 1.40 to 1.05. On the equity side, a euro “long” has been building since 2010. The equity measure seems less correlated to the euro, but does suggest a possible “long” that could be excessive.”

Mixed messages, but stronger signals suggest investors are still short

So our survey of positioning gives a mixed signal – FX-focused asset managers and equity investors are very long euros, while FX-focused hedge funds and bond managers are very short euros. Superficially the latter appear to be more important for turns in the euro, which should support a bullish euro view. One caveat would be that expectations of ECB tapering communication appear to be gathering around the upcoming ECB meeting on 8 June, this could pose a short-term downside risk to the euro, but it shouldn’t derail the medium outlook in our view.”

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

Latest Forex News

Latest Forex News

Editors’ Picks

EUR/USD drops below 1.1850 amid growing covid concerns

EUR/USD has dropped under 1.1850 as European coronavirus cases hit records. France exceeded 50K daily cases and Spain announced a state of emergency. US fiscal stimulus talks remain stuck ahead of the elections. 


GBP/USD pressured towards 1.3000 amid downbeat market mood

GBP/USD has been extending its losing streak amid a surge in COVID-19 cases in the UK and elsewhere. Investors are shrugging off reports of progress in Brexit talks. 


XAU/USD pushed and pulled in jittery market conditions

The price of gold has been testing the bearish commitments above the $1,900 psychological level following a brief spell below it, printing a low of $1,891.50.

Gold News

Bitcoin vs gold: Safe haven battle

A new idea has been floating around in Safe Haven Trading. Well, it’s not entirely new, but it’s quite controversial to say the least. For the longest time, gold has been considered to be the purest form of safe haven trading. 

Read more

WTI heavily on the back foot, but right tail remains fat

The coronavirus pandemic gets a new lease of life on the commodities market's risk barometer and at the time of writing, WTI is trading at $38.52 and has travelled from a high of $39.72 to a low of $38.31.

Oil News