Currency traders continued to buy the euro in the wake of Emmanuel Macron being elected as France’s president, last week reducing their net short positioning in the common currency to the lowest level since May 2016.
According to ANZ, citing data released by the US Commodity Futures Trading Commission (CFTC) on Friday, net short positioning in euro futures and options contracts were reduced by a further $US1.4 billion to $US7 billion, leaving it around a third of the level seen in late 2016.
It was the third consecutive week that net buying in the euro was reported, and likely contributed to the euro rising to the highest level against the US dollar since November 9 last week.
Net speculative positioning is simply the sum of long positioning less short positioning in futures and options in a particular asset, in this case the euro. A net short position implies that traders, collectively, expect a particular asset to weaken in the future.
This chart from ANZ shows the relationship between net positioning in the euro to the EUR/USD spot rate.
While net positioning in the euro remains short — implying that further weakness is expected — it’s well below the levels seen just six months ago.
That implies that traders are less convinced that the euro will weaken than what was the case just a few months ago.
ANZ uses non-commercial positions reported by the CFTC to gauge speculative positioning as these investors seek to profit from movements in an asset price as opposed to hedging business activities.
Although this simply measures positioning in futures and options contract from the CFTC, it is a useful tool to extrapolate broader market views on where a particular asset is likely to move in the period ahead.