07:36 AM EST, 12/23/2024 (MT Newswires) -- There were limited big changes to foreign exchange positioning reported by the

Commodity Futures Trading Commission on Friday with leveraged funds' short positions in euro remaining substantial, said Mitsubishi UFG.

The position lightened modestly, but remained close to the total short position reported last week, the bank said.

That short position was the largest since January 2022 in the run-up to the start of Russia's invasion of Ukraine, wrote the bank in a note to clients. Based on MUFG's measure of how stretched positioning is, the euro remains the second most stretched positioning of all the currencies reported with just the New Zealand dollar (NZD) more stretched.

NZD shorts are currently the largest since December 2019 highlighting the fact that yield remains a dominant influence for demand and the lack of yield after aggressive Reserve Bank New Zealand action is fuelling selling.

The euro selling and stretched short positioning could also have a political angle to it, stated the bank. There's a German parliamentary election in February and the political landscape in France is also likely weighing on performance.

The balance of payments statistics for October, which was before the escalation of political uncertainty in Germany, which took place on Nov. 7 when Prime Minister Olaf Scholz dismissed his finance minister, still revealed substantial selling combined across the key eurozone countries - Germany, France, Italy and Spain. Bond selling by Japanese investors totaled 2,700 billion yen, the largest month of sales for those four countries combined since the series began in 1995.

MUFG's concerns for the year ahead are mostly focused in France, not Germany. PM Francois Bayrou stated that he would announce his government before the Christmas holiday period but media reports on Sunday in France reported a delay suggesting Bayrou is struggling to even get going. The objective for President Emmanuel Macron going forward is to try and fragment the alliance on the left in parliament -- this is surely his best way of countering the far-right National Rally and Marine Le Pen.

The bank's EUR/USD forecasts imply Macron could get some success with this strategy and certainly MUFG doesn't assume early presidential elections in France. However, political risks could certainly be a downside factor for EUR if speculation of early presidential elections were to rise.