Non-Commercials increased their net long positions in the Euro last week, buying a further 3k contracts to take the total position to net long 91k contracts. This recent increase in traders’ upside exposure comes despite an escalation in political instability in the eurozone. The recent Catalonian referendum in Spain saw the region voting for independence, which is likely to be declared this week and met with swift action by the Spanish government who will likely take control of the autonomous region. Alongside this, traders are still monitoring the German political landscape as coalition negotiations continue in the background.
An absence of key domestic data this week is likely to leave EURUSD driven mainly by US catalysts. USD was stronger over the week as better data and more constructive Fed comments helped fuel a recovery. The market has now shifted to price in around an 80% likelihood of a December rate hike, up from less than 50% a month ago. The key focus this week will be on the FOMC minutes release as traders look for further information on the Fed’s outlook.
Non-Commercials increased their net long positions in Sterling last week buying a further 15k contracts to take the total position to long 20k contracts. Long positioning is now at three years highs as traders are increasingly expectant of a BOE rate hike in the coming months. Focus this week will be on the fifth round of Brexit negotiations which begin today. Despite the shift in positioning and increased BOE hawkishness, there are clouds in the outlook for GBP as many are concerned with about the prospect of Therese May leaving office which would increase political uncertainty and weigh on GBP. The only key UK data print this week will be Industrial Production due on Tuesday.
Non-Commercials increased their net short positions in the Japanese Yen last week selling a further 13k contracts to take the total position to -85k contracts. The calling of snap elections in Japan has increased downward pressure on JPY. Abe’s party is expected to remain in power which increases the likelihood of BOJ’s Kuroda remaining as governor and maintaining the BOJ’s easing policy. PY will increasingly be driven by the election heading toward the October 22nd vote and as such, trader will be keeping an eye on the release of opinion poll results once the campaign officially begins on October 10th.
Non-Commercials increased their net short positions in the Swiss Franc last week selling a further 1.4k contracts to take the total position to -3.3k contracts. Selling pressure has remained fairly consistent in the Swiss Franc which has not seen the same level of safe haven inflow as Japan over recent months. The SNB has been out of the spotlight recently given the rise in EUR but has reiterated that they remain active in the mark and willing to intervene where necessary to stop any excessive CHF strengthening.
Non-Commercials reduced their net long positions in the Australian Dollar last week selling 5.4k contracts to take the total position 72k contracts. The market has become increasingly expectant of an RBA rate rise over recent months, reflecting in the built up long position. However, last week data showed that retail sales had fallen for a fourth consecutive month and following the data, RBA member Harper surprised traders by saying that a rate cut cannot be ruled out as weak wage growth and rising household debt would cause a slowdown in economic momentum.
Non-Commercials increased their net long positions in the Canadian Dollar last week buying 0.5k contracts to take the total position to 75k contracts. Expectations of an October rate rise, which would be the third BOC rate increase this year, have fallen in light of recent data which has seen some indicators underperforming. The recent strength of CAD is also likely to weigh on the rate path outlook for the remainder of the year as it will increase the risk of dysfunction in the exports recovery.