FX COT Update: Sterling Selling Pressure Building, BOE In Focus

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This data references the period ending Tuesday, September 5th.

EURUSD

Non-Commercials increased their net long positions in the Euro last week buying a further 9.8k contracts to take the total position to 96k contracts. This latest increase in buying strength came ahead of the ECB’s September meeting which was widely expected to see the bank announcing further QE tapering. Despite the high level of expectation, the ECB maintained policy and instead gave a signal that it is likely to announce tapering at the upcoming October meeting.

The statement was mostly unchanged from the prior meeting, but there were revisions to the bank’s growth, and inflation forecasts with growth revised higher inflation downgraded. Economic data has been surprising to the upside recently though underlying inflation remains a drag and the strength of EUR has been noted as a negative factor in that context.

GBPUSD

Non-Commercials increased their net short positions in Sterling last week selling a further 1.4k contracts to take the total position to -53k contracts. GBP has been under steady selling pressure over the last month as Brexit-linked uncertainty continues to grow. The build in short positions reflects negative investor sentiment in the UK currency which has also seen selling in response to weaker data recently.

This week, traders will be focused on domestic inflation data which is forecast to have ticked up over August. CPI has recently lost topside momentum so a strong reading this week will be received positively by the BOE who meet on Thursday for their September meeting.  The BOE is not expected to adjust policy at this meeting, but trader should be aware of the risk of a more hawkish tone with the bank highlighting the growing need for a rate rise, sooner rather than later.

USDJPY

Non-Commercials increased their net short positions in the Japanese Yen last week selling a further 4.4k contracts to take the total position to -73k contracts. The increase in short positioning last week seems misaligned given the increase in geopolitical tensions between North Korea and the US. JPY has seen steady short-covering over recent weeks as safe-haven demand has resurfaced in light of the nuclear threat from North Korea. Consequently, short position has been reduced by almost half since the middle of the summer as investors choose to store their capital in the safe haven yen.

USDCHF

Non-Commercials increased their net short positions in the Swiss Franc last week selling a further 0.4k contracts to take the total position to -2k contracts. Positioning adjustments in the Swiss Franc have been extremely limited over recent weeks. Despite the rise in geopolitical tensions, CHF has not seen much safe haven inflow as investors have preferred to use the Japanese Yen. At the upcoming SNB meeting this week the bank is not expected to change policy and will likely reiterate their message that the Franc remains overvalued and that they will remain active in the FX market as necessary.

AUDUSD

Non-Commercials reduced their net long positions in the Australian Dollar last week selling 1.6k contracts to take the total position to 65k contracts. Aussie demand has been consistently strong over recent months as hawkish RBA expectations have built up alongside rising commodity prices and better data out of China, Australia’s key trading partner. The key data focus this week will be the Unemployment rate due on Thursday, which is expected to remain unchanged at 5.6% over August.

USDCAD

Non-Commercials increased their net long positions in the Canadian Dollar last week buying 0.5k contracts to take the total position to 54k contracts. Bullish sentiment continues to build in CAD as traders react to the shifting monetary policy of the Bank of Canada. The BOC took the market by surprise last week as it lifted rates by a further 0.25% to 1%. The bank noted their surprise at the strength on the Canadian economy which grew by 4.5% in 2Q, prompting the bank to lift rates accordingly following their earlier guidance that further rate hikes will be data dependent.

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