Non-Commercials have increased their net long positions in the Euro last week, buying a further 21k contracts to take the total position to 113.9k contracts. This latest increase in upside exposure takes EUR longs to their highest levels since 2007, reflecting the growing consensus that the ECB will taper more quickly than currently scheduled, in response to continued data strength in the Eurozone.
At it’s recent meeting, the ECB kept rates on hold but raised it’s growth outlook in line with continued data strength. ECB Chief Draghi added that inflation is expected to further strengthen but that current monetary policy will need to stay in place in order to maintain the sustainability of growth. On the data front this week, traders will be watching November CPI which is forecast to print 0.9% on the core reading.
Non-Commercials increased their net long positions in Sterling last week, buying a further 5k contracts to take the total position to 11.4k contracts. GBP long positions continue to grow despite uncertainty surrounding Brexit negotiations, as continued data strength leads investors to price in a higher BOE rate path for Q1 2018.
At its latest meeting, the BOE struck a more cautious tone. Keeping rates on hold, a decision backed unanimously by the group, the BOE highlighted its concern over household finances which it says are at their worst level since the Brexit referendum. However, with inflation continuing to surge, the BOE said that “further modest increases” in the interest rate will be necessary to bring inflation down to its 2% target level.
Non-Commercials reduced their net short positions in the Japanese Yen last week, buying 0.1k contracts to take the total position to -114k contracts. JPY shorts remain at extended levels as investors continue to trade the monetary policy divergence between the BOJ and the Fed. At the upcoming BOJ meeting this week, the bank is expected to reaffirm its commitment to easing via its program of QQE with yield-curve control.
Non-Commercials reduced their net short positions in the Swiss Franc last week buying 1k contracts to take the total position to -29k contracts. Despite being heavily sold over recent months, selling pressure has seen a pause in momentum over recent weeks. At its recent meeting the SNB gave the first indication that a change in policy is on the horizon. Although the bank kept rates on hold and said that it is in no rush to raise rates, the bank did lift its inflation outlook saying that Swiss inflation will break above the bank’s 2% target by 2020.
Non-Commercials increased their net long positions in the Australian Dollar last week buying .4k contracts to take the total position to 40k contracts. The large Aussie long position that built up over the first half of the year has now been reduced by around half as the RBA has made it clear that a rate rise will not be coming in the near future due to weak wage growth and low household incomes. On the data front this week, traders will be paying attention to the RBA’s December meeting minutes for further details on the bank’s outlook.
Non-Commercials reduced their net long positions in the Canadian Dollar selling .5k contracts to take the total position to 42k contracts. CAD has been net sold for two consecutive weeks now as the market dials back its BOC rate hike expectations. At its recent meeting however, the BOC was sounding more confident, with governor Poloz saying “The economy has made tremendous progress over the past year, and it is close to reaching its full potential. We are very encouraged by this, and we are growing increasingly confident that the economy will need less monetary stimulus over time”.