Over the last six months, during all of the fear and worry about the eurozone’s debt crisis, one victim that I have failed to mention is the euro currency.
Since the beginning of May the euro/dollar exchange rate has been in decline.
The euro peaked at $1.50 per euro and has since dropped all the way down to $1.31 per euro. This is a huge move for a currency in a five-month period.
The thing that caught my attention was not the decline in the euro, but rather the huge sentiment shift over the last five months.
Large speculators were net long over 100,000 contracts back at the beginning of May. That was the biggest net long position by large speculators in the past year.
The euro had rallied from the beginning of January until the beginning of May as it came out of its biggest net short position in the past year. Now the large speculators have built an even bigger net short position with over 82,000 contracts shorted.
This bearish skew leads me to believe that we are likely to see a rally by the euro in the coming months.
In order for this to happen, we will need to see progress made toward settling the European debt crisis.
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