FX For Thought : EUR and AUD (UPDATED)


This week, we have the ECB and BOE (4 Jul) , Riksbank (3 Jul) and RBA tomorrow along with the US Unemployment (Taper oriented) and Non Farm Payroll on Friday.

Would you believe that RBA is not expected to cut ? after AUD‘s move last week ?

Market Positioning

AUD is  showing its largest short (as of mid June) in 6 months out of real and leveraged money while banks have parred down longs (accounting for last week’s bash down). It looks like nobody bought AUD last week except for a small increase in hedge fund longs vs an even bigger increase in their shorts. Notice the Citi Pain Index blipping up into less negative territory for month end ?  A potential sign of short covering and profit taking.

cpainaud*The Citi FX Positioning Alert Indicators (PAIN) aim to detect crowded market positions in currencies. They measure correlation between realised returns of active currency traders and exchange rates against the USD. The indicators vary between -100 and +100. High positive readings suggest that active traders may already hold substantial net long positions in the currency against the USD, indicating a crowded trade.

The latest Nine News poll shows Kevin Rudd UP ! against Tony Abbott !!

“First national poll for PM Kevin Rudd says he has 51 per cent against Tony Abbott’s 34 as preferred leader.” (NINE NEWS)

I would call a bottom in the AUD/USD at 0.91 and look for the rebound to 0.93 on short covering with further upside to 0.96.



Citi analysts recommend a short on the EUR on account of the market positioning which remains near neutral but downside momentum has broken down. They expect CTA accounts to start selling this week.

I would be inclined to ascribe to this trade as well except that I would choose a higher entry point of closer to 1.31. The Pain Index for the EUR remains in negative zone indicating substantial shorts remain among the active traders.

cpaineur** It has been brought to my attention that this indicator is flawed because CFTC data points to the opposite ie. that the street is sitting on long EUR, with some 19k outstanding in contracts held by non commercial speculators.


Croatia joins the EU today when violence is erupting in Egypt. Obama is on the Muslim Brotherhood side sending riot control troops to Egypt (The Examiner)- so much for withdrawing troops.

Thus I would see this as a dicey one even as Greek 10Y yields break 11%, the market appears comfortable with EUR above 1.30.

As for GBP, Carney’s first BOE meeting. Not a good time to expect too many fireworks.

Any thoughts or ideas to share ?