FX COT Update: JPY Buying Kicks In

Aug 14 2017, 1:15 pm
COT report_Sterling_ECB

This data references the period ending Tuesday, August 8th


Non-Commercials increased their net long positions in the Euro last week buying a further 11k contracts to take the total position to 94k contracts long. Following some minor position squaring over the prior week, buying has now resumed in the Euro as traders continue to anticipate an announcement by the ECB at next month’s meeting regarding tapering of QE. Since Draghi’s comments at the Sintra forum, EUR has continued to strengthen and is now up over 6% on the year against USD. However, the strength of EUR is causing many to question the general expectation that the bank will reduce its QE operations at next month’s meeting.

Attention this week will be on the release of the accounts of the bank’s recent meeting where Draghi stated that accommodative policy would remain in place for some time. Traders will be keen to gauge further details from this meeting though further appreciation appears likely at this stage with the US Dollar continuing to weaken with inflation missing for the fourth consecutive month. Traders now await the FOMC meeting minutes this month for further details on the inflation outlook after the Fed acknowledged the rough patch at its recent meeting.


Non-Commercials reduced their net short positions in Sterling last week buying 4k contracts to take the total position to -25k contracts. Positioning in Sterling has been fluctuating over recent weeks as uncertainty regarding Brexit negotiations alongside differing BOE views has caused choppy action in the currency.

The vote split fell back to 6-2 in the BOE’s recent meeting as recent data showed that the UK economy grew at its slowest pace since 2012 over H1 201. Hawkish expectations had been building; unemployment remaining at 40-year lows and inflation climbing, but BOE Governor Carney pointed out that business investment is likely to remain weak given Brexit uncertainties. This week, traders will be focused on the July CPI reading which forecast to increase to 2.7% from 2.6% prior.


Non-Commercials reduced their net short positions in the Japanese Yen last week buying 16k contracts to take the total position to -95k contracts. The weakening US Dollar and reduced US rate outlook is starting to cause a narrowing of US/JPY spreads leading to some reduction in short positioning. The BOJ have reaffirmed their commitment to easing and while this bias remains intact JPY is ultimately likely to find downside again.

However, a main driver of the reduction in JPY supply at the moment is an escalation in geopolitical tensions between the US and North Korea. Following North Korean threats to attack Guam, the US has cautioned that it will retaliate with full force, this has led to a sharp safe haven bid kicking in which is likely to keep JPY supported in the near term. The latest GDP data for the country shows that growth increased for the sixth consecutive quarter, adding further support.


Non-Commercials reduced their net long positions in the Swiss Franc last week selling 3k contracts to take the total position to – 1k contracts. CHF positioning has been fluctuating around the neutral mark over the last month as a lack of directional drivers has stalled momentum in the currency. The SNB’s easing bias remains intact, however, with EUR rising steadily, the SNB are less inclined to intervene. CHF has not been a popular safe haven currency over the last year, with investors preferring JPY and so its flows are less linked to the global risk environment currently.


Non-Commercials reduced their net long positions in the Australian Dollar last week selling 3k contracts to take the total position to 58k contracts. Last week’s sales marks the first negative adjustment in AUD in several week’s as demand has remained steady, tracking an uptick in RBA rate hike expectations. Speaking last week, RBA governor Lowe said that the next move in Australian rates is likely up, though it will now come for some time.

AUD weakened in response to the comments though longer-term demand is likely to keep the currency proper up especially as Lowe’s comments could be seen as an attempt to dampen the rising exchange rate which he has warned against in recent meetings. This week data focus will be on AUD unemployment rate due on Thursday which is expected to see unemployment remain at 5.6% in July. Traders will also be keen to receive the minutes of the bank’s August meeting, due on Tuesday, for further clarity on the bank’s rates outlook.


Non-Commercials increased their net long positions in the Canadian Dollar last week buying 22k contracts to take the total position to 63k contracts. CAD has been aggressively bought over recent months following the BOC’s rate rise, with further rate rises expected before year end. Despite a soft inflation print recently, economic releases have been strengthening and the output gap closing.

With commodity prices continuing to firm and less uncertainty linked to Trump’s trade policies, investors are turning more and more bullish CAD.  This week, traders will be focused on CPI for July which is expected to tick up to 1.2% from 1% prior. A reading in this area should add further fuel to the fire and see CAD continue to increase.

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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.