BNP Paribas publish a forex report yesterday entitled “Stick To the Plan; Resell EUR/USD” in which the firm argued the following:
“Our positioning indicators suggest EURUSD positioning has not become stretched, and presumably positions have been reduced even further in this latest push higher. Moreover, we believe eurozone investors are likely to remain reliable sellers of the EUR,”
Judging by the latest CFTC speculative positioning data traders took notice and were already thinking the same thing:
With this latest data the EUR futures net short position is larger than where it was at the previous record during June of 2012 (latest data not updated on the chart):
We’ve been following the EUR/USD extreme bearish sentiment story for a while, however, this latest data offers something we haven’t seen yet; as price rose in the past couple of weeks speculators piled on bearish bets, something which they don’t usually do. Given that virtually every single firm is recommending to sell EUR/USD rallies and speculators have never been so short on EUR futures, I believe the risk is very much in favor of a highly unexpected EUR/USD rally that could easily target the 1.1200-1.1400 area and cause significant short covering as stop levels are hit.