Traders Are Net Short the Euro by $8 billion

Posted Feb 9th 2010 10:40AM by Connie Madon
Filed under: International Markets, Market Matters, Options

During a crisis, never mind what the media or government officials are saying, follow the money.

The Mercantile Exchange (CME) posts open contracts for each currency traded -- both long and short positions. By subtracting them you can get a sense of whether traders are net long or short. In the case of the euro, traders are net short 40,000 contracts or nearly $8 billion.

Meanwhile, officials of struggling countries, Greece, Spain and Portugal are telling the media that they have things under control. Elena Salgado, Spanish finance minister and Jose Manuel Campo, her deputy flew to London to meet with bondholders, the Financial Times reports. They want to reassure promises to cut Spain's budget deficit by 3% of GDP by 2013. But then the treasury wants to raise 116.7 billion euros.

Let's face it. If there was nothing wrong, Salgado would not be flying to London to talk with bondholders. Having to borrow more money is not good.

Each day new developments arise, putting more doubt and fear in the minds of traders. It is not unusual, therefore, for such a large short position to occur on the CME. The money that traders are putting up is telling us that all is not well.

We'll see in the coming weeks and months where this turmoil is headed. In the meantime, it's best to stand aside. That is, unless you want to follow the traders and short the euro.

Tags: cme, euro, europe, greece, inthenews, portugal, spain