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MARKETS TODAY: Forex market sees sharp movement, Berkshire Hathaway invests in Chubb

May 16, 2024

The current sentiment in the forex market is manifesting through interesting trends across key currency pairs, indicating potential shifts that traders should monitor closely. Starting with the GBP/USD pair, 56.68% of clients are currently bearish, with a short-to-long ratio of 1.31 to 1.

This sentiment is further underscored by an increase in net-short bets by 4.62% since yesterday and a substantial 33.04% increase from last week. Conversely, bullish bets have decreased by 16.10% since yesterday and a dramatic 36.14% from last week. This predominantly bearish sentiment suggests a contrarian view that the GBP/USD exchange rate might rise in the near term.

Historically, such heavy bearish sentiment has often led to short squeezes. For instance, during the post-Brexit volatility in 2016, a similar sentiment shift led to a sharp rebound in the GBP/USD pair. Another example is the 2019 UK general election, where bearish sentiment due to political uncertainty resulted in a rapid rise in GBP/USD as the election results stabilised the market outlook.

Moving to the EUR/USD pair, the sentiment is even more bearish, with a short-to-long ratio standing at 1.85 to 1. Net short positions have increased by 3.04% from the previous session and 21.13% from a week ago, while bullish bets have decreased by 12.01% from yesterday and 33.13% from a week ago.

This heavy bearish positioning indicates a potential rise for EUR/USD, driven by the possibility of a contrarian market reaction.

Lastly, the NZD/USD pair shows that 52.92% of traders are net short, with a short-to-long ratio of 1.12 to 1.

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Net-short positions have increased by 13.39% from yesterday and 19.25% from last week, while bullish bets have decreased by 19.57% from yesterday and 26.14% from last week. The net-short positioning suggests potential for NZD/USD to rise further.

Why Berkshire Hathaway is investing in Chubb

After months of speculation, Berkshire’s stake in Chubb has been disclosed, ending the mystery surrounding its undisclosed financial firm investment. According to regulatory filings, Berkshire’s position in Chubb reflects its end-of-first-quarter holdings, marking a strategic move that aligns with its broader investment strategy.

Berkshire has been increasing its equity stakes in banks, insurance, and finance companies while reducing its stakes in consumer products. This strategy underscores the company’s almost perennial focus on sectors where it considers itself to have expertise . Confidentiality in amassing large positions is a key strategy for Berkshire, designed to avoid market disruption.

Chubb, a major property-casualty insurer operating in 54 countries, plays a notable role in the industry, covering various risks. This aligns well with Berkshire’s core business, as insurance is central to its operations. Berkshire also has investments in other insurance companies like Geico and National Indemnity, and holds stakes in Aon Plc and Marsh & McLennan Cos.

Chubb insured the collapsed Francis Scott Key Bridge in Baltimore, with a $350 million payout expected. At the recent annual meeting, Berkshire also revealed trimming its stake in Apple Inc. due to several challenges facing the tech giant.

Financially, Berkshire’s cash pile reached a record $189 billion at the end of March, projected to hit $200 billion by the end of this quarter.