Forget The NYSE Shorts, And Be Very Afraid Of The Resumption In Bearish EUR Sentiment (And Squeeze)

Just when one thought the oversold status of the all important Euro (by way of the market defining EURUSD) may have peaked and short covering resumed, we once again find that the technical reason (not to be confused with the fundamental one which has to do with EUR repatriation by French banks) why the EUR continues to melt up, and drag all 1.000 correlated assets along with it, is that after a brief retracement in mega bearish exposure in the currency as of last week, bearish sentiment once again returned, and after 8,902 net short non-commercial contracts were covered in the weekend ended October 11, the subsequent most recent week saw another 3,925 net shorts added according to the CFTC's COT report, bringing net short exposure back to near 2011 'highs' at -77,720 contracts. This is, to put it mildly, disturbing, because while stock pundits look at NYSE short interest, in this day and age of ultra low volume and liquidity algo trading, the only real transaction occur on the uber-levered margin: i.e., the EURUSD, where one pip delta translates in roughly 2 DJIA points. But it is explicitly disturbing because while the EURUSD has just closed at 1.39, or the highest (resistance) level since early September when the pair broke down, the net short interest now is well over double when the EURUSD first traded at this level.

Said otherwise, the squeeze can easily continue once the weak hands throw in the towel and force another major short covering rally, which drags the stock market with it. That is of course, unless reality finally manifests itself, the market realizes that all European bail out plans are unmathematical hodgepodge, and the EUR trades down to its fair value somewhere well lower (at least until the Fed's threats of MBS QE become reality). Then all fiat bets are off.