Currency speculators in the Chicago futures market increased their net euro long position in the week ended January 11, data from the Commodity Futures Trading Commission showed on Friday, even though the currency fell sharply against the dollar in the spot market. According to the CFTC data, euro futures speculators added to their net long position to 16,181 contracts in the week, compared to net longs of 11,071 contracts the previous week.
Short-term investors in Swiss franc cut their net long position to 60 contracts in the latest week, compared with net longs of 11,495 contacts in the prior week.
"Long" positions are de facto bets a specific currency will strengthen, while "short" positions are effectively bets it will weaken.
In the spot market, the euro fell nearly 4 percent against the dollar in the first week of 2005, but has since cut some its losses.
"The positioning would indicate that we're at a fairly reasonable extreme," said T.J. Marta, senior currency strategist with RBC Capital Markets in New York.
But given the dollar's less-than-stellar performance this week on the back of a record US trade gap in November, many analysts still see the currency's long-term decline intact.
"In the last three days, you've seen a consolidation in price action which would be consistent with a long-term downtrend in the dollar and consistent with the market being as short the Swiss franc as it's going to get," he said.
Marta added that IMM speculators must have not been involved too much in the dollar's New Year rally.
Speculative accounts' positioning is sometimes used by analysts as an indicator of future market direction. For example, extreme net short positions often signal a rise in a currency going forward, since the build-up of positions reflects what has already happened, not the growing risk of a reversal when the market is heavily positioned one way.
Speculators also increased their net sterling long position to 21,393 contracts, from 12,523 the previous week.