EUR/USD is often bid for mysterious reasons. Who is buying the world’s most popular currency pair?
The team at Citi dives in:
Here is their view, courtesy of eFXnews:
In a recent note to clients, CitiFX discusses the positioning impact and the role different traders can have on the price action in EUR/USD at different times.
In particular, Citi argues that the recent EUR/USD resilience is due to systematic traders are having an increased impact on price action, while macro traders have been sidelined waiting for the ECB/Draghi to be more definitive.
“Here’s the crux of our argument. With macro’s sidelined waiting for the ECB, CTA’s & trend following traders have been having a greater influence,” Citi argues.
“EURUSD momentum continues to tell CTA’s to keep covering EURUSD shorts. Hence, EURUSD price action keeps drifting higher. There is a limiting factor – the ECB, but without confirmation from Draghi concern is reaching critical levels, the beta driver in markets remains to the topside,” Citi clarifies.
“Algorithmic traders follow momentum & continue to cover short positions, buying EUR. That’s the short run or beta flow in FX markets…
Alpha trading has been sidelined, but this is not forever. Until there is a change in the macro sphere and policy expectations, discretionary accounts will remain on hold and waiting to sell. The closer we get to 22 October, the greater the pressure to preposition ahead of ECB,” Citi notes.
All in in, Citi believes that while this positioning dynamics point to upward pressure in EUR/USD in the short term, they are inclined to leave their directional call anchored to 1.10 at year-end on the expectation of changing macro environment and policy implications.
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