FX COT Update: JPY Shorts Continue To Grow

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Non-Commercials reduced their net long positions in the Euro last week selling 11.4k contracts to take the total. The key driver for EUR flows this week is likely to be the development of US tax plans as the market looks to gauge the likelihood of the Senate approving Trump’s proposed reforms. Alongside this, traders will also be paying attention to the selection of a new Fed chairman as the prospect of a hawk gaining control would likely weigh on EUR.  On the data front, the Euro schedule is relatively light this week with German factory orders in Industrial Production the only key readings.


Non-Commercials increased their net long positions in Sterling last week buying 1.2k contracts to take the total position to 64.5k contracts.  Upside exposure had been building over recent months as traders reacted the BOE’s increasingly hawkish guidance. The bank raised rates by a quarter of a percent last week, however, the market reaction seems to have neglected the more hawkish elements. The continuing fluctuations in the UK political environment will likely be the main driver of GBP this week. However, the re-pricing in short-term rates should keep GBP underpinned. On the data front this week, the only key reading is Industrial Production due on Friday which is forecast to have increased over September.


Non-Commercials increased their net short positions in the Japanese Yen last week selling a further 2k contracts to take the total position to -119k contracts. JPY flows continued to be mainly linked to broader USD themes as well as fluctuations in global risk appetite. This week, Trump is due to meet with PM Abe during his Asia trip. The focus will likely be on any comments regarding the ongoing nuclear threat from North Korea. Traders will also be watching for the BOJ’s release of the summary of its opinions at the bank’s 30-31st meeting. On the data front, this week traders will be watching machinery orders for September as well as forecasts for Q4.


Non-Commercials reduced their net long positions in the Swiss Franc this week selling 9k contracts to take the total position to -21k contracts. Downside exposure has continued to grow over recent weeks as the policy divergence between the SNB and majority of the other G10 central banks. The SNB has continued to reaffirm its message that it will remain in the market as necessary to protect against any further strengthening of the Franc which it says is still overvalued.


Non-Commercials reduced their net long positions in the Australian Dollar last week selling 6k contracts to take the total position to 52k contracts. The key focus this week will be on the RBA’s November meeting. The bank is widely expected to keep rates unchanged as the bank has recently highlighted concerns about the economy. Despite growing hawkish expectations RBA’s Harper has recently commented saying that the bank cannot rule out a further rate cuts as weakened wage growth and subdued household incomes threaten the outlook for the economy. Traders will also be keen to hear how the bank addresses the recent slide in Sydney house prices


Non-Commercials reduced their net long positions in the Canadian Dollar last week selling 15k contracts to take the total position to 58k contracts. Investors have been steadily squaring their long positions over recent weeks as data weakness has seen the market dialling back its rate BOC rate hike expectations. Data released last week showed that the economy unexpectedly contracted over August despite a strong upward trend over H1. The BOC has highlighted that it will remain data dependent when considering further rate adjustments and as such, domestic data releases are taking on extra significance.


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