Comments from CitiFX on the EUR:

  • Market focused on the 1.35 level
  • Flows suggest short term clients are mixed on a meaningful break lower
  • Hedge funds have been buying back EUR since the ECB’s decision. Statistically, hedge fund flows are a leading indicator of CTA flows (who are driven by MA cross over rules). Although momentum rules still favor EURUSD downside, the intensity is fading and that creates risk. Typically the divergence between fund flows and CTAs generally closes with CTAs chasing. As with most long term directional moves, the real money flow is key to breaking a stand-off.
  • Currency managers continued to maintain their large short EUR exposure … They have now been short at least 2x normal exposure since June 2nd which is the longest such period in the close to 3-year data series