Euro Shorts Hit Record High

The latest data from the Commodity Futures Trading Commission showed the euro shorts hitting a record high last week.Traders granted the euro a reprieve after knocking it to a one-year low versus the yen on Thursday, although analysts said the currency remained vulnerable due to concerns about the fiscal health of Greece and other euro zone countries.

“The overall stance in the market is to sell dollars today. I would say it’s a temporary squeeze on euro shorts which have gotten extreme,” said Vassil Serebriakov, senior currency strategist, at Wells Fargo in New York.

The U.S. dollar slid against the euro and a major currency basket on Friday, as improved risk appetite on signs the U.S. economy is slowly recovering prompted investors to pare extreme short positions on the euro on the last business day of the month.

The euro hit a session high after Bloomberg reported that Germany may buy Greek bonds through lender KfW Group. Reuters had reported on Feb. 11 that Germany was considering using KFW to buy Greek debt. [ID:nBAT005115]

Greece has been at the center of the euro’s struggles the last few months, with its fiscal debt this year estimated at more than 120 percent of gross domestic product, the highest of any euro zone member.

A rise in global stocks and commodities reduced safe-haven bids on the dollar and boosted commodity-linked currencies such as the Australian and New Zealand dollars.

“The bigger narrative remains in Europe and in the absence of negative news today we are seeing the euro consolidating a bit. The gains seem to be a result of short-covering” on the euro, said Greg Salvaggio, senior vice president for capital markets at Tempus Consulting in Washington.

Salvaggio, however, said he wasn’t reading too much into Friday’s price action, because the market “remains incredibly bearish” on the euro zone. As economic data and “the situation in Europe continues to deteriorate,” the currency will be under tremendous pressure, he said.

Friday’s U.S. data was mixed, but overall showed the U.S. economy is slowly recovering, particularly with strong gross domestic product growth for the fourth quarter and a rise in a key U.S. Midwest manufacturing index. For a data wrapup, click on [ID:N26169261].

Still the general bias favors selling dollars, traders said, after the dollar rose about 1.5 percent this month versus the euro.

EURO REPRIEVE

The euro EUR= was up 0.6 percent at $1.3646, helped by a rise in European shares .FTEU3.

Against the yen EURJPY=R the euro was 0.4 percent higher on the day at 121.26 yen, after falling as low as 119.66 yen on electronic trading platform EBS on Thursday, its weakest since February 2009.

Analysts said the currency remains vulnerable due to concerns about the fiscal health of Greece and other euro zone countries.

The euro is on track to fall 2.8 percent against the yen this week, according to Reuters data.

Some traders said sentiment favoring the euro on Friday was boosted by its sharp rise to a six-week high against sterling, which came under broad selling pressure after above-forecast gross domestic product data failed to offset deeper worries over the UK economy. [GBP/]

The euro EURGBP=D4 rose as high as 89.72 pence, its strongest since mid-January.

The dollar JPY= was down 0.2 percent at 88.85 yen.

In late morning New York trading, the ICE Futures’ dollar index .DXY> was down 0.6 percent on the day at 80.318, but still up 1.1 percent on the month.

Data showing U.S. existing home sales fell unexpectedly in January weighed on the dollar against the yen, briefly knocking down Wall Street shares as well.

“The overall stance in the market is to sell dollars today. I would say it’s a temporary squeeze on euro shorts which have gotten extreme,” said Vassili Serebriakov, senior currency strategist, at Wells Fargo in New York.

Shayne Heffernan www.livetradingnews.com

THE HOT LIST

German Stocks Hot List Bolser, Mingo Bay