A run of disappointing data in the Eurozone and mounting concerns about the health of the global economy have prompted hedge funds and other speculators to amass the biggest bet against the euro since late 2016. Non-commercial traders increased their net short position on the euro by $2.6bn in the week to April 2 to $13.9bn, according to calculations by Goldman Sachs based on US Commodity Futures Trading Commission data released last Friday. The net short position at 99,184 contracts on the Chicago Mercantile Exchange was the highest since December 2016, Bloomberg data show. Futures trading makes up just a small portion of the $5.1tn a day forex market, but data on outstanding positions provides a rare insight into broader trading patterns.
The mounting pessimism over the euro comes as a result of the European Central Bank’s rate-setting decision meeting last week, with investors bracing for a further pivot towards looser monetary policy. Investor confidence has taken repeated blows from a string of disappointing data on several of the Eurozone’s biggest economies, particularly that of Germany, its powerhouse. Lingering concerns about the impact of Brexit on the Eurozone are further adding to the gloom, while the currency has also become a popular choice for investors to sell to finance other bets, such as buying the dollar. That role for the euro as a so-called funding currency, backed by its rock-bottom interest rates, had been a further source of weakness.
Signs of a weakening economy have already dragged the euro 2.1 per cent lower this year against the US dollar, adding to a fall of 4.4 per cent in 2018. The dollar index, which measures the greenback against six major currencies including the euro, is up a milder 1.3 per cent in 2019.