FX COT Update: USD Bought Across The Board Ahead of FOMC

Mar 13, 3:44 pm
COT report_Sterling_ECB

This data references the period ending Tuesday, March 7th.

EURUSD

Non-Commercials increased their net short positions in the Euro last week selling a further 8k contracts to take the total position to -60k contracts. EUR has now been net-sold for three out of the last four weeks. At their recent March meeting, the ECB declared that its QE program had been successful in tackling combating inflation and fuelled a rally in German yields and EUR as Mario Draghi noted that there was no longer a “sense of urgency” in taking further easing action, adding that the central bank “do not anticipate that it will be necessary to take rates further”.

This is the first clear sign that the ECB is coming to the end of its easing measures and rates markets are now showing a rate increase as fully priced in by May 2018. The US Dollar has been similarly reaction to increased rate hike expectations, however, last week’s jobs data showed that wage growth remains subdued and dampened the rally into the end of the week. CME group are still pricing a near 90% chance of a rate hike at the upcoming meeting this week.

GBPUSD

Non-Commercials increased their net short positions in Sterling last week selling a further 11k contracts to take the total position to -81k contracts.  Investor uncertainty continues to grow as markets brace for the official triggering of Article 50 and the beginning of exit negotiations. On the data front, the NIESR GDP estimate for the first quarter showed growth slowing to 0.6% over the three months to February, down from the prior 0.8%. Industrial production also disappointed falling to 0.4% in January after a revised 0.9.% growth over December.

This week traders will be watching the release of earnings and employment data with wage growth expected to have fallen back to 2.4% from the prior 2.6%

USDJPY

Non-Commercials increased their net short positions in the Japanese Yen last week selling a further 5k contracts to take the total position to -55k contracts. Positioning in JPY has been fluctuating this year as risk sentiment has reacted to developments with US policy following the arrival of the Trump administration. On the data front, recent readings have disappointed with the BSI all industries index falling from 3% in Q4 2016 to 1.3 in Q1 this year as firms reported less desire to increase capital spending. Machine orders were also noted to have fallen by more than the consensus 3.1% in January, weighed upon by a sharp decline in manufacturers’ orders.

At their upcoming policy meeting this week, the BOJ are expected to keep rates on hold as subdued inflation calls for stimulus to be maintained.

USDCHF

Non-Commercials reduced their net short positions in the Swiss Franc last week buying 2k contracts to take the total position to -10k contracts. CHF has been net-bought for three out of the last four weeks now reflecting a tone of risk aversion in the market linked to risk factors such as the upcoming Eurozone elections, Brexit negotiations and ongoing concern about Trump’s policy approach. This week traders will be watching the SNB who are expected to keep rates on hold, despite recent strengthening in CHF. SNB chief Jordan recently comments about how political concerns in Europe are likely to drive a stronger CHF and traders will be keen to hear more on this to gauge whether the bank is likely to take action or not.

AUDUSD

Non-Commercials reduced their net long positions in the Australian Dollar last week selling 1k contracts to take the total position to 51k contracts.  Despite the minor downside adjustment last week, AUD has been steadily bought over the last two months as RBA easing expectations have subsided and many investors now feel the next move for the bank will be a rate increase.

At their recent rate-setting meeting, the bank opted to keep rates unchanged for the sixth consecutive time as they deal with conflicting signs in the economy of a recovery in growth and a surge in house prices alongside still-low inflation and wage growth. This week, traders will be watching the Unemployment rate which is expected to remain unchanged at 5.7% as well as consumer inflation expectations.

USDCAD

Non-Commercials reduced their net long positions in the Canadian Dollar last week selling 1k contracts to take the total position to 29k contracts. Similar to AUD, CAD has been steadily bought over the last two months, however, price action is failing to reflect the increase in bullish sentiment. Recent data has highlighted positive momentum in the economy with the Unemployment rate ticking back down to 6.6%, which is the lowest rate since January 2015, and 105.1k full-time jobs being added to the economy in February.  A lack of key domestic data this week will see CAD tracking USD and Oil flows.

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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.