JPY Shorts Continue To Lighten Amid Increased Geopolitical Tensions

FX COT Update

Aug 21, 3:13 pm
COT report_Sterling_ECB

EURUSD

Non-Commercials reduced their net long position in the Euro last week selling 14k contracts to take the total position to -79k contracts. This latest adjustment comes after the latest ECB meeting disappointed bulls.

The central bank noted that they are still concerned with the subdued inflationary environment in the eurozone as well as the strength of the currency which has risen over 6% against the US Dollar so far this year. The release of the meeting minutes last also showed that the ECB feel investors have been too aggressive in their expectations of the ECB winding down its QE program and are concerned about “a possible overshooting”.

This week, the focus will be on a raft of PMI data due out of the eurozone as well as ECB chief Draghi who speaks on Wednesday and then again during the Jackson Hole Symposium on Friday. Investors will be keenly listening to Draghi for clues as to whether the bank is likely to announce a winding down of QE at the September meeting. Many expect that the ECB President will also use the event to further warn against EUR strength.

GBPUSD

Non-Commercials increased their net short positions in Sterling last week selling 7k contracts to take the total position to -32k contracts. GBP has been net sold for three out of the last four weeks as Brexit uncertainty has weighed on investor sentiment. The Bank of England recently warned that despite better economic data recently, business investment and consumption is expected to weaken as Brexit uncertainty weighs. Inflationary momentum has also stalled, and CPI has now missed for two months in a row, remaining at 2.6% in July, undershooting forecasts of a rise to 2.7. This week focus will be on government borrowing data as well as GDP data for the 2Q due on Thursday.

USDJPY

Non-Commercials reduced their net short positions in the Japanese Yen last week buying 18k contracts to take the total position to -77k contracts. JPY has been steadily bought each week of the last month as traders have responded to rise in global risk aversion as geopolitical tensions have increased. An escalation in the dispute between the US and North Korea, over North Korea’s testing of nuclear missiles, has prompted a global flight to safety, seeing the safe haven yen in demand.

USDCHF

Non-Commercials reduced their net short positions in the Swiss Franc last week buying 0.2k contracts to take the total position to -1.2k contracts. CHF has been out of the limelight recently as EUR strength has taken pressure off the SNB though SNB’s Jordan recently reiterated his warning against any excessive CHF strength and highlighted the SNB’s willingness to intervene if necessary. On the data front this week, Industrial Production is the only noteworthy print, while global risk flows will remain the key driver.

AUDUSD

Non-Commercials increased their net long positions in the Australian Dollar last week buying 1.6k contracts to take the total position to 60k contracts. AUD remains in steady demand as rising commodity prices, better news out of China and increased RBA hawkishness have seen traders buying up the antipodean currency. RBA governor Lowe recently said that the next move in rates, will likely be up – though not for some time. These comments were widely expected by investors who have been ramping up their Aussie rates expectations given the hawkish shift in tone by most G10 central banks over recent months. A lack of key domestic data this week will leave AUD flows linked to risk appetite and commodity prices.

USDCAD

Non-Commercials reduced their net long positions in the Canadian Dollar this week selling 11.4k contracts to take the total position to 51k contracts. This is the first week of net sales since the BOC raised rates in July and likely came in response to weak inflation data for June, which saw inflation at just 1%, as the BOC stated that further rate rises would be data dependent. Since then, however, inflation has rebounded and printed strongly in July, which alongside a rise in Oil has been supporting CAD. On the data front this week the only noteworthy release is Retail Sales due on Tuesday.

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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.