Net EUR Short Position Soars To All Time Record, Implies "Fair Value" Of EURUSD Below 1.20, Or Epic Short Squeeze

Tyler Durden's picture

It was only a matter of time before the bearish sentiment in the European currency surpassed the previous record of -113,890 net non-commercial short contracts. Sure enough, the CFTC's COT report just announced that EUR shorts just soared by over 20% in the week ended December 13 to -116,457. This is an all time record, which means that speculators have never been more bearish on the European currency. Yet, the last time we hit this level, the EURUSD was below 1.20. Now we are over 1.30. In other words, the fair value of the EURUSD is about 1000 pips lower, and has been kept artificially high only due to massive repatriation of USD-denominated assets by French banks (as can be seen in the weekly update in custodial Treasury holdings, which just dropped by another $21 billion after a drop of $13 billion the week before). This means that the spec onslaught will sooner or later destroy the Maginot line of the French banks, leading to a waterfall collapse in the EURUSD, which due to another record high in implied correlation will send everything plunging, or if somehow there is a bazooka settlement, one which may well include the dilution of European paper, the shock and awe as shorts rush to cover will more than offset the natural drop in the EUR, potentially sending it as high as the previous cycle high of 1.50. If only briefly.

Three main FX pairs spec exposure:

And correlating the EURUSD and the net non-commercial spec position:

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Dr. Engali's picture

Time to cover and go long.

dereksatkinson's picture

For a little while, definitely..

hambone's picture

Euro 1.40 to 1.20 to 1.50...I think this is all part and parcel of "Ze Price Sta-bil-i-teeee"


What happens to the Euro currency if the EU is reconfigured? Does it go to zero? Does it blast off if weak member states are kicked out?  Seems too complicated to be long or short. 

Non Passaran's picture

It depends how it happens. Not only PIIIGS can leave the euro, Germany also can. My bet is it will go down.

BalanceOrBust's picture

Germany's key interest in the Euro has always been that the weak states help keep the currency low, thus assisting German exports abroad.  When global demand crumbles, Germany will face a crucial question:  Is it better to do all it can to try to maintain its global exports even in the face of falling global demand (i.e. save the Euro) or should it refocus on domestic markets (i.e. return to the deutsche mark).  Neither option is especially appealing, but among its global OECD competitors, Germany is still in a fairly strong position.


In either of the cases above, Germany will likely retain access for its products to emerging markets, whose currencies will continue to appreciate against both a renewed deutsche mark or a weakening euro.  


Germany must choose the path that maximizes its ability to supply waning global demand wherever it is found both in domestic and emerging market economies.  The demand in most developed economies may no longer be worth pursuing.

Dr. Engali's picture

I'll short again when some of the weak hands are squeezed out.

101 years and counting's picture

Why? a majority of these shorts shorted near 1.35 2-3 weeks ago. either these shorts have gotten lucky or they are the strong hands (big money).



slaughterer's picture

Is Thomas Stolper of Goldman Sach behind these EUR shorts?  If so, we all know what to do.  

Dr. Engali's picture

I'll take the other side of a crowded trade any day. I think over the long haul you short the shit out of the Euro. But right now I'll take profits and short at a higher level. By the way. I'd be willing to bet that he will tell you to short at these levels after the majority of the short term gains have been made.

Havana White's picture

DRE...  You said the same thing in three posts.  Anyway, hey, I'm going to remain short and looking forward to the Maginot Line being overrun and beyond.  Overvalued as it is, and with nothing but gloom on the horizon, new short positions will likely open as present ones lock up profits.

george1982's picture

can see alot of buy stops getting run with the low volumes over the festive season, ill wait to build short positions in the new year! easy money!!!

bigdumbnugly's picture

it's the indianapolis colts vs. the st louis rams.

the one that sucks less wins.

Potemkin Village Idiot's picture

That would be the Rams (sucks less)... But only by a nose...

SheepDog-One's picture

I dont think this time they can pull another spectacular short cover rally. We'll see, but I think theyre out of ammo. 

There is No Spoon's picture

Looks like a good chance for a  short squeeze into the thinly traded end of the year.

devo's picture

I've been saying this for over a year, but long-term Euro/USD = 1:1 (as approaching 0).

richard in norway's picture

when the eurozone is a net exporter and all of the other stats are good on a eurozone wide basis. would you short the dollar because the northeast is falling to peices while texas, califania and the new south were flying high? my guess is that this is about fair price for the euro, if it falls any further their exporters will clean up and they already have a trade surplus

Havana White's picture

Richard... the eurozone may be a net exporter, but is it net solvent?  And whose door is the Piper knocking on right now?

TheSilverJournal's picture

They wiill have to bring in the "bazooka" option unless they're finally going to allow the entire world banking system to collapse, which would be a great thing because resources could once again be allocated much more efficiently.

PicassoInActions's picture

while every1 waiting for euro to go down- it still fucking keeping going up.

for what ever reason... and i mean whatever reason.... euro will stay above 1.30 for some time ( unless we have complete and fast crash, which i doubt

transaccountin's picture

So what exactly is this bazooka settlement? And if they print, meaning dilution of the euro, why exactly will the Euro go up? Is this another one of those transitory moments or does printing and currency devaluation apply only to the USD$?

falak pema's picture

If the euro falls to 1.20  USD, it kills WS And FED strategy of asset levitation. Its a killer for a country buried in mega debt...Print away Bernanke if Euro falls your problems are multiplied by Fifty. And...the USa has most to lose : PAx Americana.

Thats what condemns the current first world financial system to deflation fall as equlibrium is unstable. The ONLY way out along inflation route is killing the market; going totally into command economy and paying back the rest of the world by imposing currency devaluation as method to write off debt. As salaries, pensions are decoupled to inflation, this means for the 99% the standards of living fall by 50% and over five to ten years. Can you imagine the first world imposing that on its people...?

There is always plan B, war, but its not a do-able thing. As time is on the side of the poor and rising nations....

Bumblebee Tuna's picture

After this week's big fall, there'll no doubt be a bit of a bounce back up to 1.32, or maybe 1.355 on the high side.

The downtrend of the EUR is still intact that started in May.  TD's call of 1.20 certainly seems like where it's headed, once you cancel out the noise.

Mutatto's picture

Ah C'mon Tylers!


The old "if it doesn't go up, it will go down" routine? 


I thought I had finally found an oasis from the one/otherhand school of economics.....

Tyler Durden's picture

This is not a prediction that the EUR will "go up or down." This is a factual statement that the current dynamic equilibrium is extremely unstable.

DanDaley's picture

Like John Mauldin reports in Endgame, it only takes one grain of sand to start the avalanche through the "fingers of instability" in the sandpile.  Kind of poetic when you think about it.  

onebir's picture

Well he does explain the Euro upside depends on them pulling out their big bazooka... Though maybe if the Euro goes to 1.20 & US stocks drop the bazooka will be the Fed's?

Potemkin Village Idiot's picture

The old "if it doesn't go up, it will go down" routine?

Well... if you want SOLID predictions, one might confer with:

-Dick Bove



I'm just trying to think of names who offer FREE advice on the subject... You know, trying to be helpful & all...

espirit's picture

...If they don't short squeeze this mother, there's no Santa Rally and this sucker of a market is DOA into 2012.

Randall Cabot's picture

It's been quiet, too quiet.

Jlmadyson's picture

There ain't nothing they can do to hold it up now unless Bernake pushes the big red button and never lets go. That however looks like a slim to none chance at this point? Seriously after S&P downgrades what can they honestly do? Those banks are going to bleed with nothing to hold down the pressure.

SillySalesmanQuestion's picture

Get GS to advise their ckients to go short and presto magic...the Euro will go right back up....

midgetrannyporn's picture

The specs are seated at the same poker table with Ben, Jamie, and Lloyd. The table top is made of glass, and Turbo Timmy is underneath it telling da boyz the specs hole cards in between administering hand jobs and BJs.

chubbar's picture

OT, update on the NDAA legislation that was reconciled and passed by the house earlier. This excerpt from my house rep. You can all do your own interpretation on whether the language is clear or is just being worded as such because of the possibility that there is other legislation that does allow this conduct?


During debate in the Senate Armed Services Committee, Sections 1031 and 1032 were passed as part of a bipartisan compromise on detainee issues. When debating this legislation on the Senate floor, Sen. Mark Udall (D-CO) offered an amendment, Amendment #1107, to remove Sections 1031 and 1032 from the bill. This amendment was voted down on the Senate floor 60-38. As there were major differences between the House and Senate versions of this bill, a conference committee was then created in order to iron out differences between the bills.


 Due to concerns raised by many of us in Congress, the final version of National Defense Authorization Act explicitly exempts United States citizens from detainment. The Senate version was not as clear as it should have been on the citizenship provision in my view, though the Supreme Court ruled in Hamdi v. Rumsfeld that enemy combatants who are U.S. citizens must be allowed to challenge their detention. The final bill is an improvement on this however, as citizens are now explicitly exempted. Here is the specific language in the final version of the legislation:


 Page 651/1844 of the Conference Report

Section 1021

14 (e) AUTHORITIES.—Nothing in this section shall be

15 construed to affect existing law or authorities relating to

16 the detention of United States citizens, lawful resident

17 aliens of the United States, or any other persons who are

18 captured or arrested in the United States.


The detainee provisions within the bill are in line with both the Congressional Authorization on the Use of Military Force, and with current United States Supreme Court jurisprudence relating to detainment. Additionally, I heard concerns the United States military will now have the power to arrest and detain on United States soil. This is simply not the case, as the Posse Comitatus Act forbids military operations on United States. The National Defense Authorization Act has not altered any provisions to Posse Comitatus Act at all.


Manthong's picture

I will gladly pay you one dollar Tuesday for a Euro today.


hyper-critical's picture

EUR propped up not just by repatriation, but options expiry as well. This post is right on, a bifurcated situation if there ever was one. Getting balls to the wall long EUR x's if God gives us a gap lower early next week. Could be epic.

TK7936's picture

Excellent , longing German export titles .

benbushiii's picture

The COTP numbers may appear to show a large short position in the Euro, but in reality in the cash FX market the world is SHORT the dollar in size (Trillions).  The last three years of zirp have encouraged Banks, especially in Europe to leverage the carry trade in
Sovereign Debt.  The problem is the dollars that have been borrowed and leveraged need to be paid back.  The underlying security / sovereign debt has collapsed so the collateral behind the loan has created massive losses in dollars.  Right after Thanksgiving we saw the Fed cut the swap rate on dollars from 1% to .5%.  This hardly helps the problem, for when one borrows dollars (through other foreign banks) and they are leveraged and repoed into trades that are significantly under water, it does not matter what the borrow rate is for swaps.  The major financial players (can you say MFG) have been doing this trade due to all the QE measures by the FED for over three years.  Now there is a Black Hole in the collateral, and everyone owes dollars (in the 10s of Trillions).  The ECB even attempted to allow other collateral to be pledged hoping that would stem the selling, but once everyone is totally under-water in their leveraged trades there is no way out.  So when one observes the COTP number, remember this is just for the futures and does not reflect the actual amount of dollars the world is short.

BalanceOrBust's picture

So let me get this straight...


Banks borrowed dollars, converted them into Euros (or didn't) and then lent them to the Greeks, the Spaniards, the Irish, the Italians, and the Portuguese. 


And you think these dollars are coming back?


The dollars have been leveraged and neither the leveraged bets nor the original loans are being repaid.


This is why the Fed is pumping dollars overseas through swaps -- in the hope that US banks will get their money back.  Only they won't.


This is the central issue of the whole global fiasco.



SAT 800's picture

The Fed knows full well the dollars aren't coming back; it's just QE-International, without out all the public uproar; because it's not transparent.

SAT 800's picture

The CBOT exists in it's own world; a very short term one. The contract can easily rally back to 1.33 without interacting with these relativly long term cash flows; which you are correct to call attention to. The Shorts Tyler calls attention to are public money, retail money, dumb money; they mean it's 70/30 the Euro rallies 200 points in the next ten days.

Mitch Comestein's picture

Greek debt expiration on Monday.  Think they have the cash?  This could be interesting....or just another loan that will never be repaid.

I am done fucking around with these markets.  I will hold ST treasuries and gold coins.  That is it.  I will watch the show from the sidelines for the next couple years.  I hope I can stick to that conviction.

slewie the pi-rat's picture

you mentioned cash for the greeks;  don't forget to get some for yourself, too

"business as usual" is getting more and more unusual

SeverinSlade's picture

I got a scanned copy of the actual bill from my congressman. He highlighted the two sections that supposedly except US citizens. I forwarded it to my friend that's a lawyer and we both had the same interpretation.

First the bill does not rule out rendition or detaining US citizens traveling abroad. Second it says that the bill does "not intend to expand or LIMIT the President's power" which appears to be legalese for "he can still do whatever the fuck he wants."

YesWeKahn's picture

The Epic Short Squeeze of US$ never happened.

supermaxedout's picture

Unfortunately there does not exist something like fair value in currency trades. Its always very, very unfair because the rules are always set by the biggest guy.

The currency trade is the biggest wheel of all financial trades as far I know. It decides everything.

My gut impression is, that the US simply tries to kill the Euro because otherwise it can not get a grip on the currency markets as it used to have.  It is known since long, that China and the US are having a problem because China is not following the orders from the US to boost the value of the renmimbi to a level suiting the needs of the US.  This is the main problem! 

And what is frustrating for Washington is the fact, that China is even capable to keep the Euro/Dollar rate at appx. 1.30/1.40, thus the trade between China and Europe is not harmed by Washintons policy.

The fronts are clear, Washington is beating the Euro because this is the only way to bring China on its knees. And China is defending the Euro trying to avoid extremes to the up as well as to the down.

But something has to give. It can not stay foreever as it is now. There are now so many uncertainities in the financial world that the "real economy" in all countries simply has no clue  what is going to happen even in the near future. The companies can not plan because nothing is stable and this is paralyzing the "real economies".

I see the present offense in the US currency war against the Euro as an repeated attempt  to do something while Washington is  just hoping it would bring some kind of advantage.  My opinion is Washington/London do not have many options left. The crisis is killing the US and UK economies slowly but safely while all the very drastic measures did not bring the victory over China/Russia and the rest of the Brics. Europe and at its center Germany is just by accident pulled into the fighting.  Its funny to see and hear over and over again in the AngloSaxon media that Germany is trying to dominate Europe. What a bullshit. The Germans and I believe also all the other countries in Europe would be happiest if all other Eu members get along well and these problems (souvereign debt crisis) would simply not exist.