Speculators in International Monetary Market currency futures on the Chicago futures exchanges extended their huge net short euro position to the largest in over five years in the week ending May 31, data released on Friday showed. Speculators increased the net short euro position to 18,310, the largest since February 2000, from 15,321 contracts the previous week. This trend of increasing net short positions was replicated in the yen, sterling and Swiss franc, contributing to a massive overall net long US dollar position against its six major counterparts of 142,531 contracts.
Being "short" a currency is effectively a bet that it will weaken, while being "long" a currency is effectively a bet that it will strengthen. The euro has tumbled steeply in recent weeks, succumbing to heavy selling sparked by technical factors, political turmoil in the European Union and continued sluggish economic data from the euro zone.
With the euro having weakened even more since Tuesday, to a new 8-month low of $1.2157 on Wednesday, it's likely that these net short positions have been built up further.
"At the start of the week people were thinking it was time for a bounce," in the euro, said Sean Callow, currency strategist at IDEAGlobal in New York. "But it didn't work out that way, so euro positions were probably extended further."
The net short sterling position was 11,071 contracts, the biggest since January 2002, while the net short Swiss franc position was 39,399 contracts, the biggest since July 1999.
The data from the Commodity Futures Trading Commission's Commitments of Traders report on speculative positioning are sometimes used by analysts as an indicator of future market direction.
For example, extreme net short speculative positions often signal an imminent rebound in the currency, while extreme net long positions can suggest a currency has already appreciated a great deal and is poised for a correction lower.
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