We spoke and wrote about the situation in which there was a significant change in positioning on the EUR/USD pair already in March. It was then that short positions on EUR futures were drastically cut. This potentially opened the way for a price increase, which is now taking place.
Throughout the dollar index and DXY futures, there was a significant divergence between the rising price of contracts and the number of net long positions, which were much less. This indicated the possibility of a collapse in the US dollar, which after March is the case for each of the world's major currencies, and even for the zloty. As a result, hedge funds, one of the biggest forex speculators, started to play against the USD. This is the first time since May 2018.
The net positions of futures and options held by leveraged funds against the eight major world currencies fell last week to minus 7881 contracts, according to the Commodity Futures Trading Commission. The market sentiment seems to be driven mainly by growing investors bets on the future strength of the euro, Bloomberg reports.
Hedge funds have increased their net positions by another 19103 contracts, which gives a new record of nearly 200,000 contracts, essentially doubling their positions in 6 weeks. It seems that the main reason for such an attitude of investors is the unlimited availability of the cheap dollar for central banks and institutions and negative real interest rates in the US. These factors may not change quickly, so funds may maintain their position later in the year, or at least until the US presidential election in November.
In the last quarter, the entire index of the dollar lost over 7%, and the currencies that gained the most during that time were the Australian dollar – 11%, the New Zealand dollar – 10%, and the euro – 9%. In the context of the currency market, these changes are significant, and in turn, the British pound seems to be the currency with the greatest potential to the USD.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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