Has This Trade Gotten Too Crowded? Specs Now Most Long Euro In 6 Years

So yeah, as noted in “A Wild Week In Charts“, this was one hell of a week for the euro.

Unlike rates, FX markets had no trouble discerning the most important sentence in Mario Draghi’s prepared remarks for the post-ECB-decision presser. This was the sentence that mattered:

  • DOWNSIDE RISK TO OUTLOOK MAINLY DUE TO GLOBAL FACTORS

You can read the entire post-mortem explaining exactly why that seemingly innocuous bit was actually the most important takeaway here.

Anyway, the end result was the euro pushing hard towards its August 2015 high:

Euro

Well guess what? The specs were piling into this ahead of Thursday.

The CFTC data out this evening and current through Tuesday show specs were the most bullish the single currency in six years headed into the ECB (h/t to our buddy Kevin Muir on the charts, you should follow him on Twitter):

Euro

Now recall what we said earlier today (twice actually):

You should note the trend in rate differentials:

USGER

While that’s clearly euro bullish, the question is: has the single currency now run so far that’s it’s gotten ahead of the support implicit in compressing rate differentials?

The answer, as Kevin notes, is probably “yes”:

Spreads

 

 

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