What’s the Most Crowded Trade?
Tech is most likely the most crowded trade but Euro longs would likely be high on the list.
The chart below shows the number of Euro longs / USD shorts.
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Keep An Eye Out for US$ Weakness / Euro Strength: The Ecosystem Has Shifted.
The mindset in Europe is changing. The Recovery Fund and other recent measures suggest the Europeans are ready to provide meaningful stimulus and ignore their concern over “spending more than they make” (i.e., start “living beyond their means,” like the U.S.).
This structural shift in mindset & policies are expected by many to generate Euro strength / U.S. dollar weakness.
Are there other tail winds?
In addition to the positive transformations unfolding in Europe, many investors remain concerned about the twin deficits in the U.S. The persistent twin deficits in the U.S. – the fiscal or budget deficit (i.e., spending more than we make) and the current account or trade deficit (i.e., we import more than we export) – are unsustainable and will ultimately result in weakness in the greenback.
Our second chart shows the total U.S.$ net positioning. We see that traders are not only long Euros and short dollars (top chart), they are also net short dollars against other currency pairs (second chart below).
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While the twin deficits make it easy to be USD bearish in the long run, the short-term story for greenback weakness is not as obvious.
To wit, our third chart below shows the macro economic data in the U.S. are currently printing positive surprises at a rate not seen before in history.
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