by Chris Becker
From John Kicklighter at dailyfx.com:
The most remarkable FX-based COT (commitment of traders) net speculative position change last week – swell in EURUSD shorts:
For the non-traders out there, a little explanation. This represents a massive shift in positioning for traders of euro following the ECBs recent rate cut, initiation of new stimulus and negative interest rates on deposits.
The FX market is finally waking up the reality of a structurally lower euro as the US economy rebound grows and the Fed looking to tighten its stimulus (ala “the taper) and perhaps raise rates sooner rather than later.
The floor under the union currency is about to be removed as it reverts to its true underlying value – possibly parity with USD – but initial targets are the 1.27 handle and then the 1.21/1.20 support zone:
Edit: an excellent question from regular reader Ortega below in the comments is what about EURAUD?
Here’s the same weekly chart from above with EURAUD falling significantly from nearly 1.60 and approaching support at 1.41 handle. I don’t have COT numbers for this cross, but the interest rate differential – with ECB cutting and RBA holding – is putting enough pressure on EURAUD.
The target here is after a failure of support at 1.41 is back to resistance at 1.30:
I trade EURAUD fairly regularly on 4 hourlies/hourly and a long swing has developed in the short term, but any rally up to 1.47 would be a great position to start another short on the daily/weekly timeframe.