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Playing At The Deep End With The Euro

I never wanted to join any club that would have me as a member. That is the little nugget of wisdom comedian Groucho Marx imparted to me during his visit to the UCLA campus 40 years ago. It is also what came to mind when I saw the shocking Commitment of Traders Report for Euro futures that came out last Friday.

Short positions in the beleaguered European currency soared to another all-time high. From the May, 2011 peak, they have swung from a long position of 120,000 contracts to a short position of 220,000 contracts. That is a reversal of $34 billion in cash money.

Here is the problem for Euro traders. A position this large means that the risk/reward of selling the Euro versus the dollar is running against you. In the current environment bad news brings slow, grinding, marginal new lows. It is not exactly a secret that Europe is having problems these days. Good news brings furious, frantic, and large spikes up. Welcome to a hard market to trade, even if you are running a global 24 hour multi time zone desk with the best talent that money can buy. It is also why I covered my own Euro short for a big profit on the initial breakdown last week.

Watch for this week's Friday report. They will probably show even greater record highs.