The “everyone is shorting the euro” story continued to hold court in the financial media space on Monday.
Bloomberg noted that:
“Euro Worst to Come as Greece Hammerlocks ECB on Rates “
While Reuters observed:
“Euro’s future in question even if Greece rescued: Soros”
Which followed another report from Reuters last Friday citing CFTC data saying that:
“The net short euro position at 59,422 contracts hit a fresh record.”
The Market Folly blog, meanwhile, referred to a Socgen report from last Friday noting that:
By far the most notable takeaway from the data though is the fact that hedge funds now have the most short position against the euro ever. €11.5 billion are short the euro, an astonishing figure. This is partially offset by a €4.4 billion long euro position, leaving a net short position of €7.1 billion.
We’d caution just a little perspective on the euro short story. Traders point out the CFTC data being referred to is best used as a proxy indicator only, as there’s no telling how many cash positions are out there offsetting the futures market.
The FX market’s fragmentation, meanwhile, makes it difficult to put a number on the share of global trade that figure represents. According to some industry sources, the $7bn equivalent of the net short reported for 2 February was less than one percent of the total daily global volume in euro.
The most recent non-commercial euro net short of 59,422 contracts, as referred to in the Reuters report, comes in the context of an outright short position of 93,881 contracts.
To provide a comparison, sterling non-commercial net short positions reached more than 60,000 contracts late last year (a notional £3.7bn), against an outright short reflected around 75,244 contracts – meaning a much higher percentage of non-commercial interest was one-sided on the short trade.
Other sizeable net shorts have also included 80,000 contracts in the Swiss franc in 2007 (with a notional value of 10bn SFr), and nearly 200,000 net short contracts in the yen (a notional Y2,500bn) also struck in 2007.
BarCap puts it all in context in the following chart:
That said, data from CLS bank, the leading settlement agency for global currency transactions, showed a definitive spike in activity last week beyond that witnessed during the Lehman collapse. As CLS noted in a press release at the time:
London and New York, 16th February 2010 – CLS Bank today announced that it has successfully settled a new record volume of 1,733,262 sides in one day. This record is substantially above the previous record of 1,544,166 settled on the quarterly International Monetary Market (IMM) date during the week of September 14, 2008, “Lehmans week”. Total value settled was $6,181 billion and total net funding was $44.8 billion. Settlement was completed well within the normal operating parameters.
We are told some of that activity would definitely have been down to changing sentiment around the euro, but also higher trading volumes going into the US holidays.
Related links:
The declining euro, pictorial edition – FT Alphaville