EUR Shorts Hit New Record, Catalonia Woes Add to Bankia

Spanish regional funding shortfalls and problems at banks knocked EUR/USD briefly below 1.25 to cap a dismal week for the currency. Trading was light as the US heads for a long weekend but the USD was the top performer and CAD lagged. The CFTC positioning data showed a fresh extreme in euro shorts.2nd EURUSD short hit 1.2520 target while the other did not hit 1.25 & remains in progress. All AUDUSD shorts and USDCAD longs remain progress. 1 GBPUSD short closed at 1.5650, the other remains in progress. Both gold shorts stopped out. US crude short in progress.

The Catalonia regional government leader said debt financing is running out and that needs help from the central government. The report pushed the euro below barriers at 1.25 but the currency later rebounded on mild positive optimism from the final University of Michigan consumer sentiment survey, which rose to 79.3 compared to 77.8 exp.

After the euro rebounded to 1.2548 it began weakening again and continued lower or confirmation of the rumor that Bankia would need more than the promised 15 billion euro bailout. The government pledged 19 billion euros in return for a 90% stake. Later, S&P downgraded 5 Spanish banks, including Bankia and Banco Popular, which were cut to junk.

The euro closed out the week narrowly above 1.25 and the US holiday is likely to keep markets quiet to start the new week.

The market is futures heavily short euros according to the latest CFTC Commitments of Traders report. The euro net short rose to a record 195K compared to 174K last week, which was also a record. The yen short was pared to 18K from 34K. All other changes saw a net USD gain. Of note was AUD, which fell to a net short position (-17K from +5k) for the first time since Jan 2011.

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-AB