Posts by CashBackForex

Once again currency futures speculators increased their euro and Swiss franc shorts. The total euro short advanced to 204,608 contracts and the SF to 35,035. Since the Swiss National Bank has pegged the franc with the euro, the franc is merely a proxy for the euro. Specs also have a large position, long the DI Index futures contracts. With the market loaded with short euro positions, this might explain Friday rallies in the euro as specs take their money off the table ahead of the weekend. The final CME report from Friday shows the euro volume was down, but only by 4106 contracts. We have yet to see a period of panic short covering in the euro. The tally of the contracts reviewed shows the net USD long position advanced to 300,125 futures and delta adjusted options. While the net long USD is large, it is not close to a record. Part of this is because there was a reduction in the short Japanese yen positions. Another reason the net long USD position did not increase more was because there was spec buying in the Aussie and NZD currencies versus selling of the USD. There also seems to be a new trend, spec selling of the pound. Short positions have slowly grown back up to 21.2K. So far, this trade is not a money winner, probably break even as best. This is not the type of market action that encourages more selling. US Dollar Index: Despite the fact that there was a small decline in the OI, the total spec net long increased. This was possible with both spec groups, adding to their long, and decreasing their shorts. Large specs are now a 6.1 ratio long and the small specs are a 5.3 to 1 long. Euro (EUR/USD): The open interest grew by 25.2K in the period, and the spec net long grew by about the same amount. The spec net long position is now 204.6K, with the large spec a 5.2 ratio long. It is easy to conclude this currency is oversold but the new bears who have added to short euro positions disagree. British Pound Sterling (GBP/USD): There was a slight increase in the total spec short position in the pound to 21.1K. After flipping to the short side of the pound last period, the large spec added 2.6K to his position. The net short positions by the specs is very modest. Japanese Yen (JPY/USD): The different spec groups continue to disagree on where the market is headed. The large spec is long the yen and the small spec is short, but the small spec's net position is bigger than the large specs. Swiss Franc (CHF/USD): With the continued peg by the Swiss National Bank of the franc with the euro. the SF serves as a proxy for the euro. Consequently the specs have been short the SF as the euro works lower. Large specs are a 4 ratio short but they did reduce the short by 1.4K. Canadian Dollar (CAD/USD): The large specs are long the C$ by 4.6K, and long the small specs have a very nominal long. Trade in the C$ has been quiet. New Zealand Dollar (NZD/USD): Specs are long the Kiwi by about a 2 to 1 margin, after adding to the positions during the period. They are now long 7.7K contracts Australian Dollar (AUD/USD): With commercials reducing both long and short positions, the total OI in the Aussie declined by 10.5K. Large specs increased their net long by about 7.9K. The small spec is short the A$ but did modestly reduce this short.

Yesterday in Madrid Spanish Prime Minister Mariano Rajoy, bending to the wishes of Berlin and Brussels, announced the next dose of austerity, intended to produce €65B in savings. The previous austerity measures have sent unemployment soaring, 24% overall and up 50% for the young, and has resulted in contraction of economic activity and reduced tax receipts. The additional austerity will include an increase in the VAT to 21%, (still less than the 23% here in Ireland) a cut in jobless benefits, a salary cut for state employees, and local government reforms, including the elimination of year-end bonuses to civil servants. Granted some of these reforms are needed. Decades of prosperity have elevated the salaries and fringe benefits of the public sector to levels higher than the private sector they theoretically serve, in many countries. But these changes will not be well received. In Madrid there was violence as the riot police clashed with protests by coal miners. When PM Rajoy returned from the most recent summit, he claimed that the ECB would help keep lower rates, and the European Stability Mechanism (ESM) would be in place later in the year, which would allow a direct rescue of ailing banks. It took less than a week after the meeting for the Spanish 10-year rate to go back above 7%. Recently, the Spanish auctions have been small, between €2/3B, and it is estimated most of the bond buyers are the Spanish Banks, and a few pension funds. The current auctions are based on the assumption the current budget target deficit of -5.3% will be achieved. From a Credit Suisse source, this means there is only €34B debt left to issue for the year. The debt, however, is going to exceed the target, since the austerity contracts the economy. There are also regional deficits, so the size of the Spanish auctions for the balance of the year will be increasing, perhaps to as much as €5.0B per auction. Where will the Government find the buyers for the additional debt? The ECB has recently changed rules and may no longer accept bank-issued government bonds as collateral. Who will step forward to buy the coming expanded supply of Spanish debt? As for the ESM which will be providing funds for the direct rescue of banks later this year, news from Germany does not sound promising. It was reported by Ambrose Evans-Pritchard that Merkel does not have authority from the Bundestag to lend money directly to banks. Further, the constitutional court ruled last September that there must be pre-approval of any future bail outs. The Euro sell-off has been severe, but we are unable to even get the proverbial dead cat bounce. With the market as short as it has been, this is amazing. We did notice in our last COT report, the specs were coming out of their short positions. If you are a Euro bear, and no longer short the chances, are you are anxious to reinstate your position? Failure to rally to the top side of 1.03 is discouraging. Granted the FOMC notes might be USD bearish, and give us a rally, but that rally had best be sold.