June 05, 2010

A Few Words On The Euro

$1 trillion worth of a Euro/Greek-Tarp, coordinated efforts by Germany, France and the European Central Banks, bans on naked short sales and other combined Eurozone efforts to stem the outflow of confidence in the Eurozone and its flagship, the Euro, have not been enough.  Despite temporary upticks, the Euro has now dropped precipitously fast to the lowest level in 4 years.  After crashing through an important technical support at $1.2000, the market appears to be pushing down the Euro further towards a previously strong support area of about $1.1650, a level which may be tested as early as next week if the current market sentiment continues.


While there have been many reasons to be bearish on the Euro, one particular perspective seems worth a little examination.  The number of futures contracts held by large traders (institutions, hedge funds and speculators) being net short on Euro has increased dramatically since the beginning of the year.  See the red line below in the COT (Commitment of Trader’s Report) data.


What the chart does not reflect is a recently re-occurring theme.  The Euro has been trading steady during Asian and European market hours, but has seen more net sellers during North American trading hours.

Meanwhile currency futures make up only a tiny percentage of the overall global currency market. However, the data are somewhat of an indication as to what the bigger picture in the $3 trillion a day global currency market looks like.  To that end, it appears that net sellers of the Euro are still holding the upper hand for now.

No comments: