Investors accumulated the largest net long position in euro futures since records began in 1999 © Bloomberg

Positive bets on the euro have hit an all-time high, prompting some caution over whether the currency’s rapid rally could soon run out of fuel.

The latest data released by the US Commodity Futures Trading Commission show that in the week to August 11 investors as a whole accumulated the largest net long position in euro futures since records began in 1999, with more than $30bn of bets outstanding. Within that, hedge funds turned net positive on the euro against the US dollar for the first time since May 2018, analysts at Goldman Sachs noted.

The shift illustrates the outsized role that positive bets on the euro are playing in the broad decline of the dollar. But after an 11.6 per cent rise in the euro against the US currency since mid-March, some believe that gains will be harder to come by.

“The CFTC positioning data suggests that the move in the euro is overstretched,” said Jane Foley, head of currency strategy at Rabobank in London.

The currencies market has no centralised trading venue, which makes it tricky to determine which types of market participants are, in aggregate, buying or selling at any time. The CFTC data capture only a small slice of that market but they still offer what many analysts consider to be a valuable insight into how certain investors, particularly hedge funds, are behaving.

Robin Brooks, chief economist at the Institute of International Finance, said the figures displayed a “deep infatuation” with the idea that the dollar would keep sliding and the euro would keep climbing. “Positioning data went from ‘extremely’ to ‘stupendously’ bonkers in this week’s data,” he said.

Chart showing net non-commercial futures positions

The euro is trading at a more than two-year high against the dollar at $1.193 after last month staging its strongest performance in a decade, in part reflecting investors’ expectations that Europe will recover faster from lockdowns than the US. The EU’s plans to offer a joint financial response to the virus, including through a huge increase in bond issuance, are also seen as a long-term support for the single currency.

Signs of continuing demand for the euro, even after its rally so far this year, suggest that investors have not finished the process of switching out of dollar-denominated portfolios and buying euros instead, said analysts at JPMorgan. They noted that central bank reserve managers were a “particular source of demand”.

JPMorgan raised its year-end forecast for the euro to $1.20 on Friday, from a previous forecast of $1.13. “In hindsight we have clearly under-appreciated the joint FX impact of [lower US growth and interest rates and the EU Recovery Fund],” said Paul Meggyesi, global head of currency strategy at the bank, in a note.

But Ms Foley at Rabobank said price moves in August could be deceptive because of holiday-thinned trading. She said the euro could face a “sharp pullback” later in the year.

Get alerts on Currencies when a new story is published

Copyright The Financial Times Limited 2020. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article