Societe Generale’s latest hedge fund monitor sees some troubling signs for the euro ahead, the report expects selling pressure to return to euro soon as monetary policy in U.S. and Europe takes decidedly different course . Currently hedge funds are net buyers of euro against the dollar. However as ECB remains dovish and has reiterated its dovish stance and the Fed is saying goodbye to its zero rate policy, the divergence between USD and EUR curves will become wider, as one strengthens and the other weakens. SocGen sees EUR lowering to $1.25 by end of 2013.


Analysts on Societe Generale’s Hedge Fund Watch dated Sep 12 were, Alain Bokobza, Roland Kaloyan, Philippe Ferreira, Arthur van Slooten and Parveen Singh.

SocGen also points out that the long pressure on USD is likely to stay in place as a stricter fiscal policy from the Federal Reserve is almost certain now and has been expected for quite some time now. On the other hand structural reforms from ECB and pension reforms from France came as a surprise and proved to be a positive for euro which accelerated buying in euro in the past weeks, however that will not retain for longer.

European equities on a bullish run

On the other end, European equities have enjoyed streams of inflows in the past months. Almost everyone has said Europe is the place to be  at some point, however at current levels it might be too late to make an entry. Goldman Sachs Group Inc (NYSE:GS) in their latest comments have pointed out that despite of inflows, US investors have made no net allocation in European equities since Lehman’s downfall, Goldman also says that US investors remain underinvested in the euro region. So far in 2013, European equities have seen $65 billion in new investments from US based investors.

End of long run in volatility?

In case of volatility, it appears that the long run in turmoil has ended, whatever is the outcome of Fed’s upcoming meeting, the turbulence is expected to be shorter than it was in May/June. Emerging market currencies are gradually balancing and global markets are expected to normalise as taper ensues.

Hedge Fund Net positions in VIX

Selling in U.S. treasuries has been on the high ever since a possible taper became an imminent reality, yields on 10-Year USTs are now at 2.88%. Shorting of USTs is at an 18 month high, and most analysts are seeing a trend reversal in treasuries as the shorting trend has stretched on for too long now.

Hedge fund positions in 10 year UST

In recent notes from both Barclays and BofAML, analysts have predicted a correction in 10-year net positioning.