Currency Analyst since 2010

Nomura: fear not to join EUR bears

According to the latest CFTC data, net short bets on EUR/USD are the biggest since the middle of 2012, while there was a very significant jump in the overall USD longs.

A big question is whether these excessive shorts mean that it’s now too late to sell the single currency as the short covering may cause unpredictable pops higher?

Analysts at Citigroup say that very long dollar positions and very short euro positions are now being cut as the geopolitical turmoil has caught many investors with bad positions.

Analysts at Nomura, however, point out that statistics shows that a contrarian strategy (going long EUR when the position was at an extreme short) wasn’t actually beneficial. The specialists explain that this is due to the trending nature of euro in certain periods (even when positions are large). In addition, Nomura argues that many of the reversals in recent years were driven by a very specific policy announcement related to crisis-management, and there is no such announcement around the corner at the current juncture, making a sizeable reversal less likely.

Conclusion: hold EUR shorts and join the bears if the opportunity presents itself – EUR/USD will fall more.

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