If you trade EUR/USD, reference to large hedge funds will be of key importance to your success. Looking at the movement of EUR/USD and the positions of leveraged funds, we will notice that the correlation between price movements and net positions is very strong.
Much of the traders focus on the positions of large trust and investment funds and this is wrong as they use futures exchanges to hedge their assets in foreign currency - in this case EUR. Speculators and small retail traders should focus on the leverage positions of the Leverage Funds as they, in addition to hedging foreign assets, are also targeting speculative profits from the given currency.
What is happening at the moment?
What impresses is that the net positions of Leverage funds are several times smaller than those of large investment funds. This suggests that in the short term the current positive sentiment may change very sharply to negative. From the chart it becomes clear that even a slight change in the size of the net positions of Leverage funds to a negative led to a sharp decline in the currency. This was the last example we witnessed in October last year.
Source: Bloomberg Pro Terminal
Jr Trader Petar Milanov
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