The CFTC data is still showing the non-commercials, ie speculators, are still heavily net short the euro. In fact, as of last Friday net shorts had increased by almost 22,000 contracts and even though they are still not as short as they were in October, many are becoming deeply frustrated that overall the euro is just refusing to die, despite ongoing problems in the eurozone, turbulence in the bond markets and worsening economic fundamentals. In fact the euro has actually risen 3% against the US dollar this year!
With Thanksgiving this week, Black Friday and the run up to Christmas many institutional currency traders are now under severe pressure to make some profit, or at least recoup some of their losses before the end of the year, not least because too many bonuses are at stake! In fact traders who have been losing money on their euro shorts for months have simply been closing out positions and throwing in the towel thereby making the market even more volatile and illiquid. Others are simply looking to trade pairs unrelated to the euro.
According to the FT, currency analysts at UBS think the Aussie will rise against the Kiwi, whilst those at Nomura are shorting the Aussie against the Kiwi and also betting that the NOK (Norwegian Krona) will rise against the Swedish Krona. Meanwhile Schroders is betting that the Mexican peso will rise against the Aussie. Other exotic trades include shorting the Polish zloty or the Czech koruna against the euro.
For retail forex traders these coming days and weeks are likely to be even more volatile as positions are closed out for year end so books can be squared, bonuses paid or letters written to clients explaining why their investments have gone up in smoke.
For a measure of market volatility as traders we can do no better than watch the VIX which at present is holding at around 30 – twice the level it was at the start of the year and which shows every sign of wanting to push higher. The catalyst could be anything, China, Germany leaving the EU or even a strike by Israel against Iran in which case risk assets will simply be unable to handle the shock.
At times such as these my own trading timescales would be either using tick charts or very short timeframes, such as the 5 and 15 min charts. At time of writing I am looking at a possible short EURCAD or long long GBPJPY on the 15 minute chart.