FX COT Update: JPY Bears Pause As USD Weakens

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This data references the period ending Tuesday, July 26th


Non-Commercials reduced their net long positions in the Euro last week selling 0.5k contracts to take the total position to 91k contracts. At their recent meeting, the ECB kept hawkish expectations intact saying that a discussion on QE will be held during the autumn. The market is widely expecting the bank to signal a further aggressive tapering of its QE program, likely to start in the new year.

Data has continued to pick up over recent weeks with inflation tracking higher amidst an up tick in the global growth picture. Eurozone inflation came in as expected at 1.3% in July keeping hawkish expectations intact. Key data focus over the rest of the week will be a raft of PMI readings due on Thursday along with the ECB’s economic bulletin.

Last week the Fed indicated that they are likely to start their balance sheet normalisation at the September meeting which is broadly USD bullish, but USD weakness has persisted as the Fed downgraded its language regarding inflation which has now missed on four consecutive readings. Key focus now will be on the July employment reports due on Friday alongside PCE data earlier in the week, which the Fed uses as a key gauge of inflation; a weak print here will exacerbate the USD sell off.


Non-Commercials increased their net short positions in Sterling last week selling 10k contracts to take the total position to -26k contracts. The slight fall back in inflation last month tempered hawkish expectations which have been building in GBP over the last month or so following Carney’s comments at the Sintra panel and the subsequent 5-3 split at the last rates meeting. The market is broadly expecting a more dovish vote this time around falling back to 6 – 2 as new member Tenreyro (replacing the hawkish Forbes) votes for the first time. Uncertainty still remains around Brexit negotiations, so for now the bank is seen choosing to remain on the sidelines to assess further incoming data.


Non-Commercials reduced their net short positions in the Japanese Yen last week buying 5.5k contracts to take the total position to 121.5k contracts. JPY downside momentum has stalled for now as USD weakness continues to dominate markets. Policy uncertainty linked to the Trump administration as well as four consecutive inflation misses are leading investors to offload their bullish USD positions. The BOJ remain firmly committed to their current easing stance, which is unlikely to change in the near future and so any profit taking is likely to remain shortlived and selling pressure is likely to continue. After a stronger Industrial Production print for June, data focus will now be on PMI readings due on Thursday.


Non-Commercials reduced their net short positions in the Swiss Franc last week buying 2k contracts to take the total position to -1.5k contracts. Positioning in CHF has been volatile over the recent month, but the downside is expected to materialise following the recent SNB meeting where chairman Jordan reaffirmed the bank’s commitment to easing. Jordan said that CHF remains significantly overvalued and that a policy mix consisting of negative rates and currency intervention remains in place. Investors were wondering whether the bank would begin to shift its view given the general change in tone among most of the G10 banks, but policy divergence was solidified, leading to a sharp sell-off in CHF.


Non-Commercials increased their net long positions in the Australian Dollar last week buying 5k contracts to take the total position to 57k contracts. AUD continues to be in strong demand as the RBA are widely expected to be increasing in hawkishness with pricing for a rate hike continuing to rise. While the bank is not expected to raise rates at their meeting this week, markets will be looking for a more hawkish language to encourage their position.  A pickup in data out of China alongside firmer commodity prices is also increasing support for the AUD and generally creating a positive picture.


Non-Commercials increased their net long positions in the Canadian Dollar last week buying 19k contracts to take the total position to 27k contracts. CAD demand is growing week on week as hawkish expectations build following the BOC’s recent rate rise. However, traders will be keeping a close eye on inflation. The bank highlighted that further rate rises would be data dependent and with the recent June print marking the slowest reading since 2015 bulls will likely become more cautious. The key data focus this week will be the CAD employment reports due on Friday which is expected to see the Unemployment rate remain unchanged at 6.5%.


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