EUR Shorts Collapse By 35% In Two Months, Down 10% In One Week

Tyler Durden's picture

By now even 5 year olds know that the one asset class driving the general stock market is the highly leverageable EURUSD: where the core pair goes, everything else follows, especially if the direction is up (when the EURUSD slides lately it is assumed to be a confirmation that the ECB will print; when it goes up, the agreed upon explanation is that more Fed easing is imminent). As such a key variable has been the amount of net shorts in the pair, as exposed every week by the CFTC in its COT report. And where two months ago, the net short position in the EUR hit an all time record, north of -200K contracts, in the interim this number has contracted by over a third, and as of minutes ago was revealed to be "just" 139K in the week ending July 31, a 10% drop in shorts in one week. Why is this important? Because while short covering rallies have long been yet another narrative to keep shorts on the sidelines, the probability of such an event has declined dramatically now that the bulk of the weak hands have been kicked out, and the net exposure is back to January 2012 levels. In other words, 8 months later we have completed one full shorting circle when it comes to the euro., which however now is 700 pips lower than where it was back then. The Jack in the Box potential of further squeezing is rapidly declining with every move such as today's when no news and mere rumor drives the pair up by 200 pips (only to be faded of course).

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trebuchet's picture

Edit: [graph of.. ] EURUSD net short and SPY/DJIA correlation would be useful.... 

French Frog's picture

A quick look at the red line above and you'll see that it looks nothing like an SPY/DJIA chart, either in a correlated or inverse correlated way.

disabledvet's picture

"talking a nuked book." there's no way the dollar is getting stronger given the catastrophic financial condition of all State and local Governments in the USA. The euro-zone is even worse...clearly careening towards some type of unrest. With the Federal Government literally sucking up all the paper on the planet this has "war" written all over it to me.

CClarity's picture

I find the increasing yen participation surprising.  Quite a big 4 month move with nothing I am aware of to promote that.  What hear ye?

Hype Alert's picture

There is an implied ban.

deepdish's picture

Would think quite a few suffered the same as me today:Stopped out of yesterday's short.


Would think quite a few will do as me next week: Reload the short.


TheSilverJournal's picture

The dollar is in worse shape than the Euro. When the ESM gets approved and the Fed announces its next round of LSAPs, the Euro will soar and the dollar will tank.

Buying silver is a much better way to play tanking fiat.

Noonne's picture

"the ESM gets approved"

don´t bet on it, the German court just got another ESM-complaint today, targeting the built in banking license.

TheSilverJournal's picture

Surely they'll give a hellofa scare to the market that they won't approve the ESM before they do. Germany knows that if Spain defaults, then the Euro collapses and even Germany will go bankrupt. The power hungry German politicians aren't yet ready to give up control over how resources are divied up.

LawsofPhysics's picture

Riiiggghhhht, let me guess, becuase the EZ is full of such high value collateral.  Both fiats are dead (for different reasons, but mostly corruption and fascism has killed them).

Look, it is a simple thing.  The Euro must devalue, however, no-one will be allowed to profit from it, hence, you gotta blow out the shorts first - same as it ever was.

Just the same silver is still cheap, for sure.

TheSilverJournal's picture

I never said the Euro is in good shape. I just said the dollar is in worse shape. Regardless, when one currency system breaks down, it will bring the other one down with it, along with all other fiat currencies of broke countries.

LawsofPhysics's picture

And when all the fiat is dead and people look around them and start to rebuild everything, the first thing that will be done is to account for all the assets and resources of real value that reside in your boundaries.  Don't fool yourself, there is and has always been a single monetary currancy.  It's called Gold, and to a lesser extent Oil, coal, natural gas, etc..  How much Oil in Germany again?

In addition to PMs, having neighbors you can trust will be very important.  Location, location, location....

Zero Debt's picture

Germany has a vested interest in making the Eurozone look in worse shape than it actually is, as this encourages speculators to short the EUR, which boosts Germany's export competitiveness.

Turin Turambar's picture

I capitulated today.  I'm out completely, sitting in cash.  Even knowing it's rigged, I can't seem to make a good call.  I'm not even 50-50.  I'm 98-2, 98% being wrong.  Sheesh.

aleph0's picture

In other Casinos get 50/50 on Roulette ... better than WS.

French Frog's picture

In trading, being 98% wrong is very very valuable...I suggest that you carry on doing exactly the same Trading Analysis but once you reach your conclusion, just trade the opposite and become a 98-2 right....

BeetleBailey's picture're not alone. After years of triple digit annual returns in FX, this year, I am down 25% YTD.

Every weekend, I think "counter intuitive"; meaning, whatever I think, I should do the opposite.

Akin to being out of step, I am risk on, when risk suddenly goes off, then risk off, when it - WITHOUT WARNING - goes risk on.

It may not help you - but know that you're not alone.

Pretty sad when this happens, and "right side of the chart" "expert advisors" and awful levels published make trading even tougher than it normally is.

I have done more work more second guessing this year than all other combined - with nothing to show for it.

d_taco's picture

Information assymetry.

Zerohedge readers are completly unaware the terrible shape the UK economy is in.

The daily terible UK news is a no go for ZeroHedge.

After Spain it is not Italy but the UK that will colapse. I wonder how Nigel Farage will react. It will also be the end of what is left of the credibility of S&P ratings. UK the same triple A as Germany is an absolute joke.



LawsofPhysics's picture

The U.K. and Germany share many of the same reigns of power.  none of this has ever been about money, it's about power and control.

You really expect those holding the reigns of power to indict themselves?  Won't happen.  History tells us that such entities can only be removed by force.

Zero Debt's picture

Not completely unaware..

Tullett Prebon came out with a grim report in July 2011 called "Thinking the unthinkable":

This report details in 64 pages the structural flaws of the UK economy, and not only in terms of debts and the UK economy's addiction to it, but also the problems of "Labor's moral absolutism" and "entitlement". Worth a read for anyone interested in the UK economy.

Seorse Gorog from that Quantum Entanglement Fund. alright_.-'s picture

I've been scaling-in by small amount with wide stops up to 1.239. It felt more like doubling down than loading up considering I never trade on (anti-)recommendations. Annoying. I won't scale-in again until I see a real downtrend.


Remember the last anti-Stolper Eur trade at the end of Jan/Feb. It only dropped 3 months after the call.

q99x2's picture

Yep. They have to keep the bounds within limits otherwise poof.

EZT's picture

where can I get this data..?

monopoly's picture

Useless markets, impossible to trade and impossible to hold anything long term...except Real money, just keep it safely stashed away from broken banks.

old naughty's picture

...and non-real money still flooding the markets.

While another [mainpulating] scheme faded.

debtor of last resort's picture

Money is stubborn. Especially fiat money.

Hetty Green's picture

New definition of long term = overnight

Itch's picture

Dont know about fading this beast...short at 1.235 for the record, just for kicks. It will give me something to mull over for the weekend. I have a god awful feeling this fucker is going to spring into action any day now....but then again, ive had that feeling for months.

Hetty Green's picture

"It is pointless to go short on the Euro" - Mario Draghi - 8/2 Press Conference

Put on a short trade as well, though.  Must be examined for masochistic tendencies :-)

Itch's picture

"It is pointless to go short on the Euro" ...beleive me, i took him up on the offer - that was yesterday though.


And masochistic tendencies tend to examine themselves when the enemy has you by the throat.




monopoly's picture

You guys check out MCP today. Looks like rare earths are not so rare. From 60 to 11 in a year. SHZ REE Ugh. 

Fads always die.

Good weekend all! and Thank You Zero Hedge for all you do.

Yen Cross's picture

 CoT reports are based on Tuesday #'s (7-31). I do agree with your analysis though Tyler.

FieldingMellish's picture

Its funny isn't it? They are both going to print its just a question of who prints more. 

SmoothCoolSmoke's picture

Equities too high for "offical QE".  So, no "offical QE" we can drive equites higher.  Damn crooks.

fonzannoon's picture

up what....800 on the dow sine draghi and ben announced rumors of nothing...unreal

jmcadg's picture

I hear you TT. Gotta stop hanging on for the big bazooka. Take small profits and often. Obviously I couldn't trade my arse, but I do think for shits and gigs there are some cheap and tasty PUTs to be had on S&P, EURUSD, DAX etc.

Still my main play is, well, all mine.

AccreditedEYE's picture

Put this together with Stolper's long EUR call + add in the rumors that Germany is finally thinking about capitulating and you will see EUR hit parity with the USD as those who were looking for German "safety" mistakenly move to U.S. for the same to escape Bunds getting crushed. USD and T-bonds will run higher... so much for that "rotation" to risk assets in the U.S..

Randall Cabot's picture

"no news and mere rumor drives the pair up..."

I've been trying all day to figure out all day why EUR/USD shot up and all I found was a rumor that Spain was going to "officially" ask for a bailout and that was enough to drive the Euro and the European markets up with Spain and Italy up 6%? Are you shitting me???

Hetty Green's picture

We have reached new levels of insanity. 

Bad news = bullish.  Good news = bullish.  No news = bullish.  Rumors = bullish.

A wee bit of selling in between to pacify the bears.

Ain't going to end well...

Haager's picture

The thought thereafter is that when Spain asks for a bailout, the ECB has to pour money into the market. This "up" was an anticipation. So, since Spain does not ask for a bailout you might consider the possibility of a market turning south on monday.


Addendum: Now it happened that Greece got some sort of a hidden bailout, so there actually was new, fresh blood, err money, in the market. Monday in Europe should be calm then, if not bullish to some extend, tuesday bearish. The banks are thirsty, money flow in Spain and Italy is drying out.


LawsofPhysics's picture

BTFD mentality is strong in this one.

Derp2012's picture

Don't forget, stolper's muppets will be buying

EuroInhabitant's picture

Wait until the ESM gets its engines started. Devaluation is in the pocket, stupid.

Haager's picture

When the ESM is installed you may go long EUR/USD first. You do know the reason why?

strongband's picture

You've been.... STOLPERSTRUCK!!