USD longs getting close to ridiculous levels

There were a lot of people burned by the ‘one-way-bet’ in EUR/CHF but it seems the market always wants to play with fire.

Speculative USD longs are at record highs according to most measures with these positions spread across the board. EUR is obviously still the number 1 sell, followed by JPY, AUD, CAD and GBP.

This position building will not continue and will end badly for many over-leveraged speculators. Like I said yesterday, once it turns, liquidity will evaporate and no-one will be able to exit where they would ideally like.

  1. Hmm, maybe you are just painting the devil on the wall? You can’t possibly compare the sudden removal of a semi-peg by a central bank with normal price action. Even if USD longs are loaded and the tide may swing back at some point that does not mean that there will be price gaps. You are comparing here one of the most illiquid currencies during the time of the peg (hardly any turn over in any of the CHF crosses pre-peg removal) with some of the possibly most liquid contracts (Eur, cable, …).

  2. What we saw in the EUR/CHF debacle was that there are too many playing in the FX market who have no idea what they are doing, both on client side and on broker side. It’s patently obvious to anyone who understands how the FX market works that the traditional liquidity providers of interbank dealers and prop traders are gone and when an unexpected event happens, the moves are going to be more violent. Those who fail to understand this will suffer similar fates to the unfortunates last week.

  3. In a toned-down version I would generally agree with your statements (interbank fx dealers are not gone, prop is not gone either, and we have witnessed quite a lot of growth on the ECN side instead, though I agree it does not make up for the lower volume going through in the interbank market). Sure, we witness more volatility than, say, the first 3 quarters of 2014. But general volatility is nowhere near where it has often traded at even when huge volume traded between large liquidity providers. I doubt we will, that in the absence of active ECB intervention, ever see a 100 pip “liquidity hole”. Very different from those who could not get filled within a 2000 pips hole 2 or so weeks ago.

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