Hedge Funds Cut Bearish Euro Bets to 6-Week Low Amid Optimism

Hedge funds and other money managers cut bearish bets on the euro to a six-week low amid signs Europe’s economy is benefiting from stimulus while the U.S. lags behind.

Bearish euro positions outnumbered bullish bets by 197,776 contracts as of April 28, down from 214,645 the previous week, according to data from the Commodity Futures Trading Commission. That’s the lowest since March 20.

The common currency snapped a nine-month losing streak against the dollar in April as European economic data showed signs of improvement while indicators in the U.S. trailed projections.

“The big dynamic of the euro that everyone’s looking at is this huge unwinding” of short positions, David Song, a New York-based currency analyst at FXCM Inc., said by phone. The CFTC data reflect “softening of the bearish euro sentiment, softening of the bullish dollar sentiment.”

Speculators boosted net-short euro positions to a record on March 31, a month after the European Central Bank began its 1.1 trillion euro ($1.2 trillion) quantitative-easing program.

QE in Europe, combined with the expectations of an interest-rate increase by the U.S. Federal Reserve this year, made bets against the euro increasingly crowded. This week, many of those positions were closed out.

“The pair continues to benefit from the realignment in the dollar trade as more and more market participants bail from their dollar longs on the assumption that the Fed is likely to stay stationary for the foreseeable future,” Boris Schlossberg, managing director of foreign-exchange strategy at BK Asset Management in New York, said in a note.

The euro rose 3 percent this week to $1.1199, the biggest gain in six weeks.

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