Jun 06, 2022 02:46AM ET
The European Central Bank seems determined to start raising interest rates next month, giving hedge funds the opportunity to stock up on euro assets. And that is exactly what they are doing.
U.S. futures data shows that speculators are holding the largest net long position in the euro in 12 weeks, and this may have been the second-largest month-over-month positive change in fund positioning in nearly two years.
The latest Commodity Futures Trading Commission report shows that funds increased their net long position in the euro by about $2 billion last week, accounting for two-thirds of the $3 billion decline in the broader long position against G10 currencies.
The $5 billion decline in the net long dollar position against the G10 currencies over the past two weeks is entirely attributable to a corresponding $5 billion increase in the net long euro position.
In the week ending May 31, CFTC funds increased their net long position in euros to a three-month high of 52,272 contracts, up from 38,930 the previous week.
Their bet on euro appreciation is now worth $7 billion, up from $5.2 billion a week earlier.
A long position in an asset or security is effectively a bet that it will rise in value, while a short position is the opposite.
The change in the ECB's expectations is noteworthy. Just a month ago, CFTC funds held a small net short position in euros.
In mid-May, the euro fell as low as $1.0350, and there was a lot of talk about parity with the dollar.
But inflation in the eurozone continues to rise-reaching a record 8.1% in May-and the debate is no longer about whether the ECB will raise interest rates in July for the first time in more than a decade, but by how much.