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EUR net shorts mounting despite ECB’s positive moves – EUR/SEK speculative trade ideas

ECB President Mario Draghi in his last Friday's comments hinted rejection of a rate cut / QE extension in December which would likely have a positive signal for EUR.

With a Fed that will hike key rates in December after all (according to the general view).

We see delta risk reversal for 1 week contracts have shown slight recovery signals but long term (1M-1Y) put contracts of EURUSD are on higher demand.

The BoJ will not extend its QE programme despite the fact that it continues to miss its targets.

The weekly increase of 43,368 net EUR short positions against the USD from -62,566 to -105,934 contracts is the highest since April 2008 (see chart below) and corresponds to a three standard deviation (sigma) move.

A glance at the data series shows these seismic shifts in investor sentiment are extremely rare, but it underscores how aggressively investors responded to the dovish ECB press conference two weeks ago and the serious consideration that has been given to the possibility of another cut in the deposit rate (-0.20%) and an expansion of the existing €60bn/month asset purchase programme at the next meeting in December.

Trade tips:

Draghi's dovish stance prompts us to increase euro shorts; initiate EUR shorts vs. CHF in G10 and vs. RUB and PLN in EM.

The portfolio was already short EUR/SEK via a 2m seagull pre-ECB. Long a 2-month 9.30-9.15 EUR/SEK put spread and short a 2-month 9.70 EUR/SEK call.

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