According to our FX positioning gauge, the EUR was bought for most of the last week with speculative-oriented investors such as hedge funds being the main driver of the latest development. From that angle, and when considering last week’s price action, it appears that the single currency was bought on dips. This also implies that the EUR is now trading in even more overbought territory, with such conditions keeping corrective downside risk high at around the current levels. While this keeps us cautious in the near term, our long-term view on the EUR stays constructive.
Elsewhere, USD long positioning fell last week with real money investors seemingly being among the biggest sellers. This appears to be partly on the back of increased political uncertainty as for instance related to the second stimulus package. With positioning now broadly balanced, there appears to be less position squaring-related downside risk left from current levels. However, this does not mean that the USD does not face further downside risk with strongly capped central bank monetary policy expectations likely to prevent any fresh buying interest from rising meaningfully.