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Dollar's Popular Now, But...

Exchanging Dollars and Euros
Exchanging Dollars and Euros

Long dollar positions are growing, especially against the euro. That could get interesting as the FOMC meeting nears.

You know everyone is down on the euro, but how down?

Re-e-e-a-lly down, says Goldman Sachs.

Analysts there have developed an estimate of net positions in the big currencies, and on a scale of -10 to +10, they say investors were -7.5 on the euro even before the tumult of the last few trading days.

Meanwhile, investors have net long positions on the dollar of +4.4, according to Goldman. And that figure actually understates dollar positions against the euro, they say, since it includes all the investors who are short the dollar against the Japanese yen.

"It is likely that EUR positioning is now close to max short," the analysts wrote in a note to clients.

All well and good - but remember, there is a two-day FOMC meeting coming up, and before the bad news started pouring out of Europe there was an awful lot of talk about what kind of economy-stimulating, interest-rate lowering measures the Fed might take. It's worth noting that by Goldman's count, investors were +6.3 long the euro against the dollar before QE2 was announced.

The bottom line: a significant policy move toward easier money could make those long dollar positions pretty uncomfortable.

Be careful out there.

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