Record bullish sentiment on the U.S. dollar means ETFs pegged to the unloved euro would benefit from a a potential “short squeeze” in the currency if investors get any positive news on Europe’s debt crisis or further central bank intervention.
Bullish bets on the dollar among institutional investors are at record levels, Dow Jones reports.
Additionally, negative euro sentiment as measured by investors betting on a fall in the value of the currency also recently hit record levels, according to the report.
PowerShares DB US Dollar Index Bullish (NYSEArca: UUP) is down more than 1% so far in June, which has provided a lift to stocks and precious metals like gold. The currency ETF’s index measures the dollar’s fluctuations against a basket of currencies.
The dollar ETF has eased back following May’s spike on Eurozone debt fears. UUP saw only five down sessions last month.
Some Wall Street currency analysts like Geoffrey Yu at UBS are saying that excessive dollar longs and euro shorts means a short squeeze in the euro could be in the cards.
A short squeeze occurs when investors betting against a currency or security are forced to buy to cover their short positions.
A stronger euro and weaker dollar could provide a boost to U.S. stocks and would signal receding anxiety over European debt and banks.