FX COT Update: JPY Buying Resumes Following Weak BOJ

Aug 08 2016, 2:35 pm

This data references the week ending Tuesday, August 2nd


Non-Commercials reduced their net short positions in the Euro last week buying 9k contracts to take the total position to SHORT 104k contracts. This correction to the recent bearish momentum that has been building in Euro represents a lack of catalyst for further downside going into the quiet summer trading period. Whilst recent upticks in US labour data have put pressure on Euro; rate-hike expectations are still reduced ahead of the US elections and with EuroZone data continuing to print positively there are no clear drivers ahead of the September Fed, ECB meetings. Attention this week will be on a raft of Tier Two EuroZone data.


Non-Commercials increased their net short positions in Sterling last week selling a further 2k contracts to take the total position to SHORT -83k contracts. This latest increase represents a new record high in Sterling short positioning reflecting the level of expectation that had built up in the market ahead of the Bank of England’s August meeting. The meetings saw the bank surprising the market by easing across all four channels with the headline rate lowered by 25bps, Gilt purchases of £60bln over six months initiated, Corporate bond purchases of £10bln over 18 months initiated and finally a Term Funding scheme to offer cheaper liquidity to banks. The measures, which far surpassed market expectations, put firm pressure on GBP with the minutes revealing that most MPC members expect to vote for further rate cuts in the near term.


Non-Commercials increased their net long positions in Japanese Yen last week buying a further 7k contracts. This resumption of buying in the Yen represents the level of disappointment felt by markets in response to the BOJ’s recent policy adjustments which fell far short of market expectations. Following the meeting, the Japanese PM Abe announced details of the new fiscal stimulus measures which alongside traditional pending measures included cash handouts of Y15,000 to low-income earners. With less than a quarter of the budget to be targeted at spending investors judged that the plans would have little impact on the economy and JPY strengthened.


Non-Commercials reduced their Net long positions in the Swiss Franc last week and flipped to net short positioning, selling 3k contracts to take the total position to SHORT -2k contracts. The Swiss Franc has been under growing pressure over recent weeks as markets continue to build SNB easing expectations in the wake of Brexit. Current market pricing suggests an 80% likelihood of easing by September.  The latest CPI data which, although better than expected in July at -0.2% YoY vs. -0.3% exp, shows that inflation stubbornly remains in negative territory, keeping the pressure on the SNB to act.


Non-Commercials reduced their net long positions in the Australian Dollar last week selling 1k contracts to take the total position to LONG 31k contracts. This minor correction to recent buying AUD came ahead of the RBA’s August meeting which saw the bank cut rates by a further 25ps, in line broad market expectations. Despite this latest easing, AUD remains buoyant deriving support from strengthening risk appetite amidst global easing and an uptick in Oil prices and also by the hunt for yield which sees AUD remain an attractive destination for foreign capital with rates far above many of its trading counterparts. The RBA noted the persistently low inflation environment which is forecast to continue in the medium term with CPI not expected to return to the bank’s target range of 2% – 3% until end 2018.


Non-Commercials reduced their net long positions in the Canadian Dollar last week selling 5k contracts to take the total position to LONG 18k contracts. This latest reduction in Canadian Dollar buying reflects mounting concern for the strength of the Canadian economy on the back of the BOC having recently revised their growth forecasts lower. Canadian Employment data last week showed that instead of an expected 10k gain in the level of employment, 31.2k actually left the workforce. However, service sector employment over July is notably volatile due to swings in the education sector.  A renewed uptick in Oil prices following reports that OPEC will once again consider production freeze talks in September is adding support at the start of the week.

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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.