Euro Cracks 1.32 Despite Downgrades, Specs Add Shorts

The euro squeeze continued on Friday but speculative positioning data suggests plenty more traders will be forced to the exits as shorts reached a fresh record. The top performers were JPY and CHF while USD and CAD lagged. On the week, NZD and CHF led while USD and JPY lagged.

The Fed surely recognized the accelerating talk of QE3 after the FOMC. NY Fed President Dudley had a chance to manage those expectations in a speech Friday. Instead, he fuelled them further, saying unemployment is unacceptably high and that inflation is decelerating. Much work remains for the Fed to achieve its mandate, he said.

Those comments and below-consensus GDP data sparked a sell off in the US dollar. EUR/USD climbed more than 100 pips on the day to 1.32 for the first time since Dec. 13. US GDP grew at 2.8% in Q1 compared to 3.0% expected. One particularly soft spot in the report was business investment. Even with extremely lenient borrowing rates, companies are choosing to hoard cash.

Greek debt talks continued with negotiators saying they made important progress on legal and technical issues. Fin Min Venizelos said a deal was one step away.

Cable climbed for the 10th consecutive day in spite of a 100 pip drop into the London fix, the pair recovered and finished comfortably higher.

CFTC Commitments of Traders

Euro shorts increased 11.3K to 171.3K, as of the close on Tuesday. That timeframe includes the rally to 1.3025 from 1.2625 and suggests traders were continuing to press shorts in spite of gains. Its clear that a short squeeze is ongoing in EUR but the takeaway here is that it may still have plenty of room to run.

Unlike EUR, short positions in GBP cleared out quickly. Shorts decreased to 31K from 41.5K. Similarly, CAD shorts were trimmed to 19K from 29K.

Yen longs aggressively exited positions, confirming that a shift in speculative thinking was largely behind the early-week rally in USD/JPY. The net long fell to 44K from 60K.

Australian dollar longs continue to mount, climbing 31% to 69.5K. Similarly, NZD longs climbed to 13K from 9.5K.