The past couple of weeks I have been monitoring the positioning of hedge funds on the weekly commitment of trader reports. I noticed some interesting extremes forming which combined with a couple of other catalysts could highlight an opportunity forming.
Commitment of Traders (CoT) report: Hedge funds are extremely long on the euro and heavily short on the Aussie dollar.
Fundamental catalysts: Key macro events and trade deal uncertainty could flip the narrative.
When positioning reaches extremes, history tells us that sharp reversals often follow. Here’s why EUR/AUD could be one of the most interesting setups on the board right now.
Positioning Shows Extremes
The latest CoT report shows:
EUR: Hedge funds are at a bullish extreme. When positioning gets this crowded, it often marks exhaustion. Any disappointment (like weak GDP or trade deal complications) could force longs to unwind, putting pressure on the euro.
AUD: Hedge funds are aggressively short, betting on more RBA cuts. If Australian CPI beats expectations or risk sentiment stabilizes, AUD could rally sharply as shorts get squeezed.
This creates a perfect storm for EUR/AUD downside, because both currencies could move at once – euro down, Aussie up.
Fundamentals: Key Drivers Lining Up
Eurozone headwinds are building.
Q2 GDP is expected to come in flat after growing 0.6% in Q1, signaling that momentum in the eurozone is fading. On top of that, the recently announced US-EU trade framework has raised more questions than answers. Disputes over steel, aluminum, and pharmaceutical tariffs remain unresolved, leaving room for further uncertainty that could weigh on the euro.
Australia has a potential upside catalyst.
The upcoming Q2 CPI report could be the game-changer for AUD. If inflation data comes in stronger than expected, it would challenge the market’s assumption that the Reserve Bank of Australia will cut rates in the coming months. That could force a rapid short-covering rally in AUD.
Technical Picture: EUR/AUD at Key Levels
Resistance: 1.8000 (recent swing high)
Support: 1.7600 (break confirms bearish momentum)
Target: 1.7200 (if hedge fund positioning unwinds)
The price is breaking out of a daily time frame trend line support as well as key swing lows. A break of these lows would be ideal for short opportunities down to the key support zone around 1.7200.