FX COT Update: Non-Commercials Turn Net Short JPY

Dec 12, 1:08 pm
COT report_Sterling_ECB

This data references the period ending Tuesday, December 6th.

EURUSD

Non-Commercials reduced their net short positions in the Euro last week buying 5k contracts to take the total position to -115k contracts. Positioning n the Euro has been driven by market uncertainty over recent weeks as traders adjusted positions ahead of the Italian referendum.  Despite a high level of concern that the Euro would crash following a “No” vote in the Italian constitutional reform referendum, the Euro in fact rallied.

This reaction once again highlighted the erratic way in which the Euro has responded to political risk events over the year.  Despite the initial rally, the Euro did eventually crash lower last week as the December ECB meeting saw the central bank announce an extension of its QE program, which will now run beyond the initial March 2017 end date to December 2017. The bank also announced that they would reduce the scale of asset purchases from 80bln Euros a month to 60bln Euros a month.

EURUSD monetary policy divergence is expected to be further amplified this week as the Fed are widely expedited to raise rates at the December FOC meeting. The key to how the market reacts to the meeting will rely on what the bank signal for the rate path over 2017.

GBPUSD

Non-Commercials reduced their net short positions in Sterling last week buying 1k contracts to take the total position to -77k contracts. Short positions have continued to be reduced in cable over recent weeks as traders respond to the developing Brexit landscape. Reports that Article 127 might allow the UK to retain single market access even once Article 50 is triggered have helped encourage the view that the UK will be able to avoid a hard Brexit, lending support to the UK currency. This week traders will be watching UK CPI due on Tuesday which is expected to have ticked up to 1.1% in November from 0.9% prior.

USDJPY

Non-Commercials reduced their net long positions in the Japanese Yen last week selling 34k contracts to take the total position to -34k contracts. This huge shift in the positioning means that Non-Commercials have now flipped net short the Yen for the first time in over a year. Long positions in the Japanese Yen have been steadily unwound over recent weeks as markets react to the BOJs yield curve control policy which has been capping JGB yields in an environment of rising global yields.

Furthermore, buoyant risk appetite in the wake of Trump’s election and stronger Oil prices following the successful OPEC deal has seen JPY weaken on diminished safe haven demand.  The BOJ’s shift away from short-term interest rate setting, as the core of their monetary policy, is so far looking to be working effectively and keeping JPY pressured.

USDCHF

Non-Commercials increased their net short positions in the Swiss Franc last week selling a further 1k contracts. The Swiss Franc has been steadily sold over the last month as diminished safe haven demand amid firmer risk appetite has seen investors moving away from the Swiss Franc and into riskier assets.  The latest release of the Swiss National Bank’s currency reserves showed the biggest rise in almost two years, suggesting that the SNB intervened in markets to protect against CHF strength in the wake of Trump’s election.

AUDUSD

Non-Commercials held their net long positions in the Australian Dollar unchanged last week. Long positions in the Australian Dollar have been steadily unwound over recent weeks as expectations of further RBA easing grow. Despite the bank remaining on hold at their recent meeting, traders anticipate that the bank will be forced to cut rates yet again as recent economic data highlighted weakness in the Australian economy. Data showed that Australia’s GDP declined by 0.5% in the September quarter marking only the fourth such decline in 25 years.

USDCAD

Non-Commercials reduced their net short positions in the Canadian Dollar last week buying .4k contracts to take the total position to -18k contracts. Positioning in the Canadian Dollar has been volatile over recent weeks as speculation in the build-up to the November OPEC meeting caused erratic price moves. With OPEC having now confirmed a production cap deal, Oil prices are expected to rise which should lend support to the Canadian Dollar.

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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.