Rising Net Long Positions in the Euro: A Contrarian Signal for EUR/USD Bulls?

The euro’s recent surge has drawn significant speculative attention, with the CFTC Commitments of Traders (COT) report revealing a net long position of $17.9 billion as of August 26, 2025—the highest level since March 2020 [2]. This figure, coupled with extreme retail forex sentiment, raises a critical question: Are EUR/USD bulls nearing a point of exhaustion?

COT Report: A Contrarian Lens

The COT report, released weekly by the CFTC, provides a granular view of speculative positioning. For the euro, non-commercial traders (speculators) have extended their net longs to a 25-week high, driven by short-covering and a lack of conviction in the U.S. dollar’s strength [4]. Large speculators added 11.8k EUR contracts in the latest report, while asset managers trimmed their exposure, suggesting divergent strategies among institutional players [3].

Historically, extreme net long positions in the euro have often preceded reversals. The COT Index—a normalized measure of positioning—typically signals overextension when it exceeds 80%. While the exact index level for September 2025 is not disclosed, the $17.9 billion net long is close to the upper end of historical ranges, implying a potential contrarian opportunity [1]. For context, the euro’s net longs in 2020 collapsed after reaching similar levels, triggering a sharp correction [1].

Retail Sentiment: A Crowded Short Trade

Retail forex sentiment data adds another layer of caution. As of September 2025, 72% of retail traders are short EUR/USD, with an average target of 1.1369, while only 28% are long, targeting 1.1620 [3]. This stark imbalance suggests a crowded short trade, a classic contrarian red flag. When retail traders are overwhelmingly bearish, it often signals that the market has priced in most of the expected downside, leaving little room for further weakness.

This dynamic is amplified by broader macroeconomic factors. The EUR/USD pair has been trading in a tight range between 1.1400 and 1.1800, with weak U.S. labor data and Fed rate-cut expectations providing a floor for the euro [3]. Meanwhile, the euro’s technical indicators suggest a short-term correction within a longer uptrend, complicating the case for aggressive shorting [5].

Historical Context and Risk Assessment

To contextualize the current positioning, consider the euro’s performance during previous COT extremes. In Q1 2025, net longs surged to a 25-week high, only to reverse sharply after the Fed signaled tighter policy [4]. Similarly, in 2020, extreme bullishness coincided with a rapid unwind as the dollar strengthened amid pandemic-driven flight to safety [1]. These episodes highlight the risks of overleveraged long positions, particularly when macroeconomic conditions shift.

However, the euro’s fundamentals remain mixed. While the Eurozone’s economic recovery is fragile, the U.S. faces a more certain rate-cut trajectory, with the CME FedWatch tool pricing in a 99.4% probability of a September cut [1]. This creates a structural bias for the euro, complicating the contrarian case.

Conclusion: Caution Over Certainty

The EUR/USD market is at a crossroads. While the COT report and retail sentiment data suggest overbought conditions, the euro’s structural advantages—relative to a weaker dollar—cannot be ignored. For investors, the key is to balance these signals: using the current extremes as a cautionary note rather than a definitive reversal trigger.

In the short term, a pullback to 1.1400 could test the euro’s support, but a sustained break below this level would require a material shift in Fed policy or a eurozone crisis. For now, the data points to a market that is stretched but not necessarily doomed. As always, volatility remains the price of admission in forex.

Source:
[1] Can COT Data Predict the EUR/USD? A Data-Driven FAQ on Positioning, Reversals, and Trading Models [https://yellowplannet.com/can-cot-data-predict-the-eur-usd-a-data-driven-faq-on-positioning-reversals-and-trading-models/]
[2] COT report: Modest gold and silver longs fuel breakout [https://www.home.saxo/content/articles/commodities/cot-on-forex-and-commodities---1-sep-2025-01092025]
[3] EURUSD Forex Sentiment [https://www.myfxbook.com/community/outlook/EURUSD]
[4] EUR/USD bears short-covered at fastest pace in 5 years [https://www.forex.com/en-us/news-and-analysis/eur-usd-bears-short-covered-at-fastest-pace-in-5-years-cot-report-2025-03-24/]