Euro longs are getting stretched

CFTC speculative positioning data show Euro longs near their historical maximum

The Euro is having a moment. It’s clearly been the main beneficiary of tariff tumult in the US. As a really wise and experienced market participant told me a few weeks ago: “Sometimes doing nothing ends up being the best thing.” That’s a good description of the Euro zone. So many structural issues to confront - foremost the nagging question of periphery debt overhangs, which means countries like Italy and Spain have a severe lack of fiscal space - but standing still on this issue starts to look good compared with the chaos across the Atlantic.

Doing nothing is fine when expectations are low. But expectations for the Euro zone are no longer low. As the chart below shows, speculative Euro longs in the CFTC’s CoT report are now near their historical highs (blue area). This build-up in long Euro positioning inevitably embeds expectations of progress, which the Euro zone can’t and won’t meet. As I’ve argued in previous posts, the Euro zone is locked in a toxic stand-off over debt. It’s been that way since Draghi’s “whatever it takes” in July 2012 and it’ll be that way for a lot longer.

This doesn’t mean that there isn’t progress in some areas. The EU in recent months unleashed a formidable wave of sanctions on Russia’s shadow fleet. It’s demonstrated a willingness to go it alone on this issue in a meaningful break from the past. But it’s also true that the EU in recent years is guilty of saying one thing and doing another. Just think of Greece’s shipping oligarchs who continue - to this day - to sell oil tankers to the shadow fleet or German car makers who transship to Russia. I remain doubtful that the EU can live up to the hype that’s formed in recent months.