FX COT Update: GBP Shorts Reduced As Rate Hike Expectations Increase

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This data references the period ending Tuesday, July 12th.

EURUSD

Non-Commercials reduced their net long positions in the Euro last week selling 10k contracts to take the total position to 86k contracts. This latest position adjustment comes on the back of the ECB’s September meeting. The bank had widely been expected to announce further tapering measures in line with earlier guidance. However, the bank refrained from adjusting their purchases at this point and instead signalled that they would wait until the October meeting. Notably Draghi refrained from commenting on the exchange rate which the bank had previously cautioned was having a negative due to its recent appreciation. Draghi will be speaking twice this week and both sets of appearances will be closely watched by traders for any further comments ahead of the October meeting.

GBPUSD

Non-Commercials reduced their net short positions in Sterling last week buying 7k contracts to take the total position to -46k contracts. Sterling is currently caught between two opposing market forces, with uncertainty linked to Brexit exerting downward pressure while increasing hawkish BOE expectations provide support. At their latest meeting, the BOE noted that removal of monetary stimulus would likely be appropriate over the coming months if the economy continues to perform as expected. These comments fuelled a sharp repricing in the rates market as the chances of a 2017 rate hike have now increased significantly.

USDJPY

Non-Commercials reduced their net short positions in the Japanese Yen last week buying 16k contracts to take the total position to -57k contracts.  Safe haven inflows continue to dominate the positioning landscape in JPY as investors cautiously monitor the growing threat from North Korea. The news of the latest missile launch by the communist state has provoked outrage in the international community and a wave of risk off buying in JPY.  At its September meeting this week, the BOJ is widely expected to keep its policy unchanged amidst increased geopolitical tensions and consequent upward pressure on JPY.

USDCHF

Non-Commercials reduced their net short positions in the Swiss Franc last week buying 0.8k contracts to take the total position to -1.3k contracts. Positioning in CHF remains at very light levels along with only minor adjustments having been made over the last month. The SNB has moved out of the spot-light recently as EUR strength has taken some pressure off the bank. A lack of key domestic data this week should leave CHF fairly quiet.

AUDUSD

Non-Commercials reduced their net long positions in the Australian Dollar last week selling 2k contracts to take the total position to 63k contracts. AUD buying momentum has stalled over the last two weeks as rising geo-political tensions have seen risk assets lose demand. The build in AUD buying this year has been premised on rising RBA rate hike expectations as investors anticipate a rate rise in the near future. Speaking this week, however, RBA’s Harper said that growth is too low in Australia to justify a rate rise currently. Traders this week will be focusing on the release of the RBA’s September meeting minutes, looking for further details on the likelihood of a rate adjustment.

USDCAD

Non-Commercials reduced their net long positions in the Canadian Dollar last week selling 3k contracts to take the total position to 50.5k contracts. The Bank of Canada recently raised rates for a second time this year following bumper 2Q growth figures. The bank reiterated their data dependant position on further rate increases leading most players to anticipate further rate rises in the near term if the economy continues to perform robustly. Attention this week will be on August CPI, due on Friday which is expected to have increased. A solid print here should further bolster expectations of another rate hike before year end.

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