FX COT Update: Sterling Shorts Cover For Third Consecutive Week

Sep 19, 3:34 pm
BoE_Sterling_GBP

This data references the period ending Tuesday, September 13th.

EURUSD

Non-Commercials reduced their net short positions in the Euro last week buying 11k contracts to take the total position to SHORT 81.4k contracts. This reduction in short positioning represents EUR bears covering at their fastest pace since January and reflects a lack of downside catalysts coming on the back of the ECB’s latest meeting which saw the bank remain on hold once more. Traders’ easing expectations whilst had built up over the summer have now started to dwindle as EuroZone data continues to surprise to the upside. Whilst the ECB continue to note their readiness and willingness to act, traders are less convinced that the ECB will ease further in the short term as Draghi noted the bank had not even discussed an extension of QE at their latest meeting.

GBPUSD

Non-Commercials reduced their net short positions in Sterling last week buying 7k contracts to take the total position to SHORT 83k contracts. This reduction marks the third consecutive weekly reduction in shorts, the longest run of position squaring since the Brexit vote. Similar to the Euro, the GBP short covering has been driven by a lack of fresh downside catalysts. At their latest meeting, the Bank of England opted to keep policy on holding noting resilience in the UK economy since Brexit, indicated by strengthening economic indicators. The bank noted that they expected H2 growth to be stronger than initially expected, in line with recent data. However, the bank did note that they remain ready to act in November if the outlook is in line with August forecasts. Again, however, given recent data, traders are unwinding easing expectations.

USDJPY

Non-Commercials increased their net long positions in Japanese Yen last week buying 2.3k contracts to take the total position to LONG 57k contracts. The resumption of buying in the Japanese Yen came amidst a surge in safe-haven demand last week as an uptick in US rate hike expectations and rising global bond yields weighed on asset and commodity prices, weakening risk sentiment. Expectations are once again high ahead of the BOJ meeting this week with Japanese papers reporting last week that the BOJ will move further into negative rates. With the BOJ having reduced the duration of their bond purchases over recent weeks, leading to a steepening in the long-end yield curve, many analysts believe that the BOJ are looking to change their focus away from rates and onto targeting a steeper yield curve.

USDCHF

Non-Commercials reduced their net long positions in the Swiss Franc last week selling .1k contracts to take the total position to LONG 1.3k contracts. Positioning has been fluctuating quite a bit in CHF over recent weeks as risk sentiment has similarly gyrated in response to changeable Fed rate hike expectations. The SNB opted to keep rate son hold last week, despite expectations for easing having been as high as 80% in late summer. The bank did note that the Swiss Franc is still “significantly overvalued”. The SNB also noted that “The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market are intended to make Swiss franc investments less attractive, thereby easing upward pressure on the currency.”

AUDUSD

Non-Commercials reduced their net long positions in the Australian Dollar last week selling 2.5k contracts to take the total position to LONG 36k contracts. This reduction in longs marks the third consecutive week of long covering in AUD.  Traders continue to cover long positions in the Australian Dollar as risk sentiment has suffered in the midst of an uptick in US rate hike expectations leading to an unwinding of carry trades in commodity currencies.  On Monday, the Treasury and the new RBA Governor Morrison reaffirmed the bank’s 2-3% Inflation target. The RBA meets this week and whilst the bank is not expected to ease policy further, traders will be keen to hear the latest outlook from the bank and new governor.

USDCAD

Non-Commercials reduced their net long positions last week in the Canadian Dollar selling 4k contracts to take the total position to LONG 17k contracts. Similar to what we are seeing in the Australian Dollar, traders have been unwinding carry trade amidst an uptick in US rate hike expectations which has weighed on risk sentiment over recent weeks.  However, CAD is currently supported as we start the week based on strength in Oil markets which rose as Venezuela reported that OPEC and Non-OPEC producers are close to reaching a deal on halting output. Alongside this development have also been reports that Libya has missed a major Oil shipment, the first in two years, due to fighting in the country.

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With over 6 years’ experience analysing currency markets, James is now a well-known industry analyst focusing on price action trading and fundamental drivers. Beginning as a private retail trader, James developed a strong interest in understanding the fundamental aspect of the market before pursuing technical trading capabilities which he now uses to identify opportunities over a short-term horizon. Alongside his market experience, James is also IMC certified having achieved the qualification to help further his understanding not only of the markets but the industry as a whole. James has a strong interest in both fundamentals and technicals and uses both forms of analysis in generating and executing trade ideas, with trades generally lasting from a few hours to a few days.