Forex Trading Library

FX COT Update: ECB Easing Expectations Fuel Downside Bets

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This data references the period ending Tuesday, October 18th.

EURUSD

Non Commercials increased their net short positions in the Euro last week selling a further 16k contracts to take the total position to short 109k contracts. This marks the third straight week of selling in the single currency. Euro downside bets continue to grow fuelled by increased ECB easing expectations. The ECB last week gave a firm signal to markets of their intent to adjust policy at the December meeting when they update inflation and economic forecasts.

The bank noted that whilst recent data had pointed to growth in the EuroZone there is not yet any sign of an upward trend in inflation and the baseline scenario remains subject to downside risks. When questioned about the prospect of tapering, Draghi noted that he saw it as “unlikely” that QE would come to an abrupt end. The bank also noted that they had not yet discussed an extension of QE. In all, it was quite a guarded session with the ECB chief careful not to give too much away, but market definitely got a sense of the likelihood of December easing.

GBPUSD

Non Commercials reduced their short positions in Sterling last week buying 4k contracts to take the total position to SHORT 92k contracts. This buying marks the second week of short covering in Sterling. Downside momentum has waned slightly in the wake of the flash crash episode which has seen some players leaving the market amidst heightened volatility.

Sentiment remains heavily negative for the UK currency however as investor uncertainty regarding Brexit continues to cloud the outlook. Over the week reports that many top banks are planning to leave the UK following the triggering of Article 50 has heightened Brexit concerns.

USDJPY

Non Commercials reduced their net long positions in the Japanese Yen last week selling 9k contracts to take the total position to LONG 37k contracts.  This marks the third consecutive week of selling n the Japanese Yen which has seen a reversal of upward momentum in light of recent US Dollar upside.

Recent Japanese data has continued to highlight weakness in the economy and suggests that the BOJ will not yet be done easing though for now, BOJ easing expectations have moved to the side of the stage. Key data focus this week will be on CPI due on Friday. Inflation has been trending steadily lower over the year moving from highs of 0.3% to current lows of -0.5%.

USDCHF

Non Commercials increased their net short positions in the Swiss Franc last week selling a further 7k contracts to take the total position to SHORT 16k contracts. The continued selling of the Swiss Franc comes amidst improved risk sentiment over recent weeks which has seen a reduction in safe-haven inflow. A stronger US Dollar is also weighing on the Swiss Currency. Swiss Franc easing expectations have subsided recently though renewed downside in the Euro could once again put pressure on the SNB.

AUDUSD

Non Commercials increased their net long positions in the Australian Dollar last week buying a further 4k contracts. This marks the fourth consecutive week of buying in the Australian Dollar. The Aussie continues to be supported with the RBA having recently kept rates on hold whilst also noting that they are comfortable with the current Aussie rate. This statement saw a weakening of easing expectations for the currency with many now expecting that the RBA will remain on hold until the new year.

USDCAD

Non Commercials increased their net short positions in the Canadian Dollar last week selling a further 3k contracts. Position in the Canadian Dollar has been fluctuating recently though downside bets are still building. The BOC recently confirmed their easing bias noting that they had “actively discussed” further easing at their October meeting where they also lowered their growth forecasts. Oil prices are also adding pressure with Iraq this week noting that they are seeking exemption from an OPEC production cut deal.

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