In early 2017, doubts regarding the integrity of the Eurozone led many to take refuge in the Japanese yen. Unlike the euro, the Japanese yen exhibits classic safe haven characteristics and tends to strengthen during downturns. Following the Brexit referendum vote and US presidential elections, few were willing to bet on opinion polls that predicted Macron’s victory. Similar to political events in 2016, there was a risk that polls were failing to capture the so-called protest vote. Following the Eurozone crisis, French GDP growth remained weak, while disappointment with the European Union was growing. Given the risk of a future French president ideologically opposed to the European Union, EUR/JPY weakened as investors hedged their long euro positions.  

Long euros now a global consensus

Following the victory of Emmanuel Macron and a strong rebound in Eurozone growth, investors unwound their hedges and went long the euro. Unsurprisingly, EUR/JPY soared in response. Looking at data from the Commitments of Traders report, euro speculators flipped from net short to net long soon after Macron’s victory in May 2017. Over the course of 2017 and early 2018, euro net long positions have continued to build. This is visually shown below:

Euro long positions and positions as a proportion of open interest at extremes

Source: MarketsNow, CFTC

As can be seen above, the number of net long positions in euro futures and options contracts has continued to grow since May 2017 and currently stands at +143,097 contracts. As we wrote in our latest commentary on the COT Report, long euros is at a bullish extreme (more than two standard deviations above trailing averages) looking at the last 36 months of data. Finally, long interest is also fairly high as a proportion of total open interest. Specifically, the net long position is 20.1% of all open interest. Looking at technical conditions, we have warned that the euro is looking overbought in several editions of our euro daily update.

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