IMM Positioning: Markets Continue To Add Long Euro Positions‏

The latest IMM data covers the week from 15 January to 22 January.

• Higher EONIA rates and tighter peripheral spread: The latest IMM data covers a week where EONIA rates moved significantly higher after the ECB ruled out a new rate cut on 9 January and the rates market started to focus on the LTRO repayment that kicked off this Friday. The move higher in EONIA rates came along with a further fall in Italian and Spanish yields. The euro optimism is also visible in the IMM positions, where net long euro positions were build to 9.9% of open interest and speculative positioning can now meaningfully be considered to be net euro long. Hence, we have now moved from a phase of covering of short EUR/USD positions to a phase where new net long EUR/USD positions are the main position driver behind EUR/USD. The market is certainly not stretched long EUR/USD, so further upside from positioning is certainly possible.

• Scaling back on long GBP: Since October 2011, the market has overall been adding to long cable positions. However, probably due to growing concern about the UK outlook the market has now reversed some of the long GBP positions. However, note that the market is still speculative long GBP (cable) and there is still room for unwinding. In our view, there is a growing risk that GBP has the makings of a perfect storm as (1) Cameron’s speech has created uncertainty, (2) the new Bank of England governor Mark Carney might change the inflation target, (3) there is a risk of EONIA and USD rates moving higher and (4) reversal of euro debt crisis flows.

• Investors are once again adding slightly to short USD positions: Net short USD positions reached USD21.2bn and are approaching the recent high from September. EUR and AUD buying were the primary drivers reflecting the euro and carry positive environment.

To Read the Entire Report Please Click on the pdf File Below.