Over the weekend the IMF meeting failed to provide any meaningful resolution to the current currency imbalances in the market stating in its communiqué that it pledged to "work toward a more balanced pattern of global growth, recognizing the responsibilities of surplus and deficit countries" and vowed to "address the challenges of large and volatile capital movements, which can be disruptive." The language with its broad generalities but no specific action was acknowledged to be "ineffective" by even the IMF Chief Dominic Stauss-Kahn. Overall the delegates essentially agreed to defer any action to the next G-20 meeting in November in Seoul.
The greenback initially fell further in early Asian trade with EUR/USD rising to the 1.4000 level once again as traders were disappointed by policymaker's lack of progress . However, the anti dollar rally soon ran out of momentum and the pair was trading lower at 1.3965 in mid-morning European trade. One key factor in dollars favor is that the unit is simply grossly oversold on a near term basis.
The latest positioning data from CFTC revealed that speculators increased their anti-dollar bets by 30 Billion - the largest value since 2008. Specs were long 48,243 contracts of euros - their biggest position since October 2009. At that time last year the EUR/USD peaked within two months of reaching such extreme positioning.
While positioning by itself is rarely a good predictor of long term price action, the extremes in sentiment often lead to at least a temporary correction as markets become skewed. With EUR/USD having rallied relentlessly for nearly a month some sort of pause may be due and the pair could correct towards the 1.3750 area this week unless currency markets hear more dovish rhetoric out of the Fed.