Leveraged funds are net short EURO FX to the tune of 67,504 contracts, a position that grew by 27,132 contracts over the week and now sits at the most stretched level since the data series began on 6 January 2026. That is not a mild lean. It is a crowd that has committed hard to the view that the euro's fundamentals were deteriorating, and the tape gave them cover to do it: the Eurozone manufacturing PMI slipped to a four-month low of 51.4, and the euro touched a one-year low against the British pound after inflation missed the levels the market had been pricing.
Set that against what is happening in the Treasury market. The 5-year note position moved from net short toward covering, with the net short shrinking by 52,735 contracts on the week, and the 10-year note showed the same pattern, its net short narrowing by 113,406 contracts, a flow large enough to lift its positioning away from the extremes the desk highlighted a week earlier. The 2-year note is the outlier: leveraged funds extended that net short further, by 76,269 contracts, keeping the front end of the curve pricing a firmer policy path even as the belly softens its bet on higher yields.
That is the tension the house view was pointing at when it argued the liquidity backdrop has flipped and the regime signal has not caught up. If the Treasury market's own positioning is starting to hedge against yields staying lower rather than rising further, that sits uneasily next to a euro short built partly on the assumption that the growth and policy gap between the US and the euro area is unambiguously in the dollar's favour. The US Dollar Index itself is not confirming the euro story with much force: it is down 0.18% on the day and down 0.22% over five days, even as it holds a 2.0% gain over the month. EUR/USD at 1.1399 is sitting just above its 20-day low of 1.1354, which means the crowded short is already priced close to its recent floor rather than pressing into fresh territory.
A short this stretched, sitting on a currency pair already near the bottom of its recent range, is vulnerable to almost any surprise that reads dollar-negative. The desk's own note from 1 July flagged that the euro short's persistence, or its unwind, would hinge on Friday's payrolls data rather than on anything intrinsic to the euro. That test arrives now.
The Non-Farm Employment Change print is due at 12:30 UTC with the forecast at 114K against a previous reading of 172K, a sharp expected deceleration. The Unemployment Rate forecast holds flat at 4.3% and Average Hourly Earnings m/m is forecast unchanged at 0.3%. A print anywhere near that softer forecast for hiring would hand the crowded euro short its first real test since positioning began climbing to these levels: covering in a position this size, on a pair already pinned near its 20-day low, tends to move fast once it starts. The falsification condition is straightforward. If Friday's jobs data comes in at or below the forecast and EUR/USD fails to break its 20-day low of 1.1354, the euro short is not being justified by the fundamentals it was built on and a squeeze becomes the more likely near-term outcome; if the data prints stronger than forecast and the euro short keeps extending past its current record crowding, the desk's dollar-bullish read survives and the Treasury short-covering becomes the signal that was premature.
