Hedge funds exit bullish euro positions just ahead of the Greenland tariff threat

Hedge funds closed their bullish positions on the euro just days before U.S. President Donald Trump threatened to impose new tariffs on European countries, as he intensified efforts to take control of Greenland.

Data from the Commodity Futures Trading Commission show that in the week ending January 13, leveraged funds shifted to a small net short position in the single currency. This marks the first move from net long to net short positioning since late November.

Analysts note that this shift could increase downward pressure on the euro after Trump proposed tariffs, unless a deal is reached for the United States to acquire Greenland.

“Hedge funds are likely comfortable remaining net short and may even add to positions if the ‘dispute’ begins to look like a full-blown trade war,” said Nick Twidale, chief analyst at AT Global Markets.

The euro fluctuated between gains and losses early Monday in Asian trading, underscoring the uncertainty facing investors as they weigh the risk of a renewed trade conflict that could undermine growth in Europe.

Morgan Stanley warns that market participants are underestimating the risk of extreme scenarios that could trigger sharp moves in major currencies, particularly the euro.

The single European currency fell as much as 0.2% before rebounding 0.3% to $1.1628, while the Bloomberg Dollar Spot Index declined 0.2%.

Bloomberg strategists note that the euro’s relatively modest decline likely reflects traders’ caution regarding the potential negative impact on the dollar as well, according to Markets Live strategist Connor Cooper.

Strategists at Commonwealth Bank of Australia, including Joseph Capurso and Carol Kong say:

„The euro-dollar pair could test support near 1.1499 this week amid tensions surrounding Greenland. They add that the trade dispute linked to control of the island is likely to escalate before it begins to ease.“

Source: Bloomberg Terminal