Société Générale (SocGen) provides an examination of why the euro hasn't declined further against the U.S. dollar (USD), utilizing insights from EUR/USD futures positioning data reported by the Commodity Futures Trading Commission (CFTC).

Positioning Data as an Indicator: The analysis notes that positioning data comes with a lag, and it often serves as a lagging indicator of market trends. Traders tend to reverse their bets after a change in trend, not before.

Stubborn Long Position in EUR/USD: Despite ample reasons for the euro's position to be trimmed back significantly, there still exists a substantial, stubborn long position in EUR/USD. This positioning has been influential in preventing the euro from falling further.

Momentum and Overshooting Trends: SocGen emphasizes that market trends often overshoot their equilibrium levels as they follow momentum, causing currencies to trade at levels that may not necessarily align with fundamental value.

Near-Term Outlook: The analysis suggests that as long as these long positions in the euro remain in place, EUR/USD may continue to trade within a range for a while longer.

Potential Shift in September: If economic data fails to provide support for the euro, and if relative expectations about Federal Reserve (Fed) and European Central Bank (ECB) policies don't shift in favor of the euro soon, SocGen warns that long euro positions might capitulate in September.

Key Points:

1. Long Positioning in EUR/USD: The lingering long position in EUR/USD helps explain why the euro hasn't declined more substantially.
2. Momentum Dynamics: Trends can overshoot, driven by momentum rather than underlying fundamentals.
3. Dependence on Data and Policy Expectations: The euro's trajectory will be sensitive to economic data and shifts in monetary policy expectations.
4. Potential for Change in September: Without supportive data or policy shifts, long euro positions could be unwound, leading to changes in EUR/USD levels.

Conclusion: SocGen's analysis offers an insightful look at the forces shaping the EUR/USD currency pair. By analyzing positioning data, they uncover the stubborn long position that has kept the euro from declining further, despite several fundamental reasons for a potential fall. The near-term stability in EUR/USD may be at risk, with potential for significant changes come September if economic data and policy expectations don't align in favor of the euro. Investors and policymakers may find this perspective valuable for understanding the dynamics at play in the currency markets and for preparing for potential shifts in the coming months.