Investors in the Middle East are looking for further weakness in the Euro against the major currencies and especially against the US Dollar (USD). Although it has been a choppy ride, the consensus, looking at the open positions, is for further declines towards the parity with the USD.
In the past few weeks, especially after the European Central Bank (ECB) December meeting which resulted in only slight changes to their asset purchases program, short contracts have increased significantly.
The latest commitment of trader’s reports by the CFTC showed a notable spike in short positions to the highest level since May of this year, while the Net Long/Short dipped to the lowest level since June. This accurately reflects the moves we are seeing.
Traders in the Middle East have been buying USD from the beginning of the year. However, in Q3 the long contracts increased significantly. Looking at volumes across dollar pairs, the flow from Middle East investors has been, and continues to be, heavily weighted to buying USD.
This is at odds with the CFTC commitment of traders report in the US, which shows that US Dollar Index longs contracts have decreased since the beginning of the year, despite the fact that the US Dollar has been on a bull run since the start of the year. The Non-Commercial Longs decreased by almost 40% since January until October, before rising again in December by 10% before the Fed’s decision in December.
One of the reasons for this has been the notable decline in the MENA region equities and crude oil prices. Investors have moved into the USD as a safe haven asset which, for many, was the right decision. The US Dollar Index advanced to the highest level since 12 years, rising above 100.0 barrier which was good news for the bulls.
Moreover, traders decided to diversify their safe haven assets, buying into the Japanese Yen. In Q3 we saw significant trading volumes heading to the Yen which has continued through Q4. This is despite all the talks of easing as the economy slides back in to a recession. However, regional investors have been very happy trading the Yen’s tight range and ignoring some of the more volatile pairs.