Second Highest Weekly Short Covering Spree In Euro Contracts Follows Drop In Commercial Gold Shorts

The most recent CFTC Commitment of Traders report confirms our expectations that there was a major short covering squeeze in Euros. In fact, with net short positions declining to -38,909, or a 34,761 drop in contracts week over week, this was the second biggest short covering rampage in EURs in recent years. The only bigger one occurred 4 weeks ago, when 50k net short contracts were covered. The current net short speculative interest outstanding is back to early February 2010 levels. Keep in mind that precisely a month ago, on June 8, we saw the biggest net number of EUR short contracts on record at 111,945. All weak hands have now been shaken out, and without any marginal sellers, a long USD positions would be counterintuitive sense, especially with Goldman and CS selling the other side of the trade.

Other notable CFTC observations: net JPY long positions just hit a 2010 high at 37,926, as CHF and GBP net shorts are at several month lows. It appears the entire speculative community is easing out of foreign FX shorts and refocusing efforts on shorting the dollar.

Lastly, in the precious metals category, commercial gold shorts dropped materially. Net gold commercial shorts dropped by 40k contracts to -249.1, as over 15% of the entire commercial open interest was covered in the past week. That could help explain the dramatic drop in gold as banks unwound existing paper short hedges as end users were selling their gold holdings. Gross commercial gold positions dropped by 30k from 482k to 452k.