Why are European (and global) stock markets and the euro rallying today on vague rumors that there’s a plan to bailout Greece when yesterday similarly vague official statements couldn’t stem the tide?
Could it be because today the markets believe what they discounted yesterday?
How ‘bout because figures released today from CME Group show that short positions against the euro climbed to record levels in the week ended February 2.
Traders and hedge funds have bet nearly $8 billion against the euro. That the biggest short position in a single currency ever, according to The Financial Times. With that many traders and that much money short, it’s a good bet that the euro is due for at least a short-term bounce.
And that’s what I think we’re seeing today. Some traders are simply trying to see if they can stampede a few of the traders holding some of the 40,000 contracts against the euro into unwinding some of that huge short position.
How long the bounce lasts depends on whether or not any of today’s vague rumors turn into anything substantial.
How vague are the rumors?
The morning’s big hope hangs on news that European Central Bank President Jean-Claude Trichet will leave a meeting in Sydney one day early. Based on that thin straw, euro optimists have concluded that some kind of bailout deal is in the works with an announcement to come when European Union leaders meet on February 11 to discuss the Greek crisis.
Does that seem thin? Well, if you’re part of the biggest single-current short position in history, the last think you want to do is to get caught in a panicked rush for an exit on actual news. Exiting short positions even on this kind of rumor, I’m sure, strikes some shorts as just plain prudent.