FX COT Update: Sterling Shorts At Record Level

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This data references the period ending Tuesday, 14th March.

EURUSD

Non-Commercials reduced their net short positions in the Euro last week buying 18.5k contracts to take the total position to -41k contracts. This marks a severe short squaring with shorts being reduced by nearly 30%.  Following the ECB’s recent monetary policy meeting, traders are now sensing that the central bank is on the path toward hawkishness with a rate hike now fully price in by May 2018.

ECB member Nowotny reaffirmed this view in comments made last week saying that an ECB rate hike may be on its way before QE ends. Adding further support for the Euro was the outcome of the Dutch elections which saw the Eurosceptic Geert Wilders failing to grab power. Investors will now be hopeful that a similar result can be achieved in the upcoming French elections.

Despite USD long positions growing ahead of the FOMC, the Fed failed to provide fresh impetus for further USD gains as the widely expected 25bp increase in rates wasn’t accompanied with the expected hawkish guidance traders were looking for. The Fed noted uncertainty remains around Trump’s proposed fiscal policy though for now, and dependent on data, the bank is still on course for three further hikes this year.

GBPUSD

Non-Commercials increased their net short positions in Sterling last week selling a further 26k contracts to take the total position to -107k contracts. This latest adjustment brings GBP short positions to a record level as bearish sentiment continues to build ahead of the official triggering of Article 50.

In their March monetary policy meeting, the bank struck a broadly hawkish tone with one member, Forbes, voting for a hike this time around. The statement also revealed that “some members noted that it would take relatively little further upside news… for them to consider that a more immediate reduction in policy support might be warranted”.

Regarding inflation, which has been steadily rising the bank noted that “there are limits to the extent that above-target inflation can be tolerated”. Traders will now be keenly watching the latest inflation figures due this week which are forecast to see CPI return to the bank’s target for the first time in years.

USDJPY

Non-Commercials increased their net short positions last week selling a further 17k contracts to take the total position to -72k contracts. This marks a strong resumption of selling in the safe-haven Yen which is suffering from subdued yields in the context of rising global yields, especially against USD.

For now, the BOJ is expected to continue to remain on hold with their yield curve control programme keeping JPY anchored. An absence of key domestic data this week is likely to keep traders focused on global risk sentiment and USD performance.

USDCHF

Non-Commercials reduced their net short positions last week buying 1k contracts to take the total position to -9k contracts. Position in CHF continues to be fairly light as markets adjust around the key themes of Eurozone election risk, US rates, and Trump’s policy path.

The SNB have warned that election risk tied to the Eurozone is likely to further strengthen CHF which SNB Chief Jordan has said remains “fundamentally overvalued”. With the Dutch elections having struck a blow to populist support and EUR strengthening, the SNB will be hoping the pressure is starting to dissipate.

AUDUSD

Non-Commercials reduced their net long positions in the Australian Dollar last week selling 8k contracts to take the total position to 43k contracts.  The Aussie has been steadily bought over 2017 as RBA easing expectations have subsided and the market now anticipate the bank is moving back towards a tightening path.

Despite the recent uptick in data, the Unemployment rate was seen rising back to 5.9%, a 14-month high, in February.  Traders will be keen to receive the RBA’s meeting minutes this week for further clues as to the policy outlook.  RBA Assistant Governor Guy Debelle will be speaking mid-week which is likely to attract market attention also.

USDCAD

Non-Commercials reduced their net short positions last week selling 8k contracts to take the total position to 21k contracts. CAD has been sold two weeks in a row as hawkish Fed expectations, and a sharp pull back in Oil have combined to weigh on the currency.  Traders will this week be focusing on the release of CPI figures for February which are forecast to remain at 2.1% YoY.

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