The latest IMM data covers the week from 3 to 10 March 2015 .
IMM positioning data released Friday revealed that while investors added to their speculative bearish EUR positions in absolute terms, non-commercial positioning measured as percentage of open interest actually became less negative. While this at first may seem contradictory, the reason is that the denominator in the fraction 'percentage-of-open interest' also includes commercial positions (i.e. hedges), which are at a historically high level. In fact, an important argument related to our expectation of a lower EUR/USD in the coming months is related to the high EUR exposure hedge ratios:
when EUR-denominated assets rise, more EUR selling is required to compensate for the higher share of euro assets in the portfolio, which in turn will drive more EUR weakness. Even though EUR/USD looks oversold both technically and according to our short-term financial models, we still expect it to maintain the downside momentum as EUR assets will likely continue to perform due to the better economic outlook and due to the 'hot potato effect' of negative euro rates and excess liquidity driving investors to riskier assets. Should EUR assets lose momentum, we expect any EUR/USD bounce near term to be short-lived as markets will likely increasingly turn their attention to the Fed re-pricing, which in our opinion remains too dovish.
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