FX COT Update: Euro Longs Jump On ECB Tightening Expectations

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Hawkish ECB Expectations

EURUSD

Non-Commercials increased their net long positions in the Euro last week, buying a further 36k contracts to take the total position to 128k contracts. Investors have been increasing their upside exposure over recent weeks, as the market anticipates a faster pace of accommodative monetary policy removal over the coming year. The key focus this week will be on the release of the ECB December meeting minutes though, this is unlikely to provide much in the way of new information.

Away from the ECB meeting minutes, focus this week will turn to politics, as preliminary Grand Coalition talks begin in Germany. The talks will be centred on 15 key areas including; economic, migration, foreign and EU policy. These talks come ahead of a conference being held by the SPD on Jan 21st, where the party will vote on the outcome of these initial negotiations ahead of formal Grand Coalition talks.

 

GBPUSD

Non-Commercials increased their net long positions in Sterling last week buying a further 4k contracts to take the total position to 16k contracts. Investors sentiment remains positive towards GBP, as data strength encourages the view that the BOE will tighten quicker than expected over the coming year. Brexit negotiations continue to cloud the outlook though, for now, GBP remains stable.

 

USDJPY

Non-Commercials increased their net short positions in the Japanese Yen last week, selling 6k contracts to take the total position to -121k contracts. The JPY short position has now almost returned to record levels, as investors continue to trade the monetary policy divergence present between the BOJ and most of the other G10 central banks. At its latest meeting the BOJ reaffirmed it’s commitment to easing and said that a shift in policy was not on the horizon.

 

USDCHF

Non-Commercials increased their net short positions in the Swiss Franc last week, selling 2k contracts to take the total position to -16k contracts. The CHF downside position that had built up over the final months of 2017 has now been reduced by around half. Investors are now questioning whether there is a policy change on the horizon for the SNB after the central bank raised its inflation outlook at it’s recent meeting. However, the bank did highlight that the Franc remains “highly valued” and that it is in “no rush at all” to begin policy normalisation.

 

AUDUSD

Non-Commercials increased their net short positions last week, selling 6k contracts to take the total position to -20k contracts. AUD has rallied strongly so far this year despite some data weakness coming through, with the latest trade data showing a surprise deficit. Hawkish RBA expectations have been firmly subdued over recent months, as the RBA itself has highlighted issues within the economy adding; a rate rise will not come for a long time. Traders now await the next key data release, by way of Q4 inflation due at the end of January. In terms of data this week, focus will be on retail sales due on Thursday.

 

USDCAD

Non-Commercials reduced their net long positions in the Canadian Dollar last week selling 2.6k contracts to take the total position to 15k contracts. Positioning in CAD has reversed sharply from the large built up long position of Q3/Q4 2017 to current levels as data weakness has seen a dialling back of BOC rate hike expectations. However, with data starting to print firmly again there is a risk that the market is under-pricing BOC rate adjustments which could see volatility around upcoming MPR meetings.  BOC governor Poloz has been careful to highlight his cautious stance on further rate adjustments though it seems the market has wrongly interpreted this as meaning that the BOC is done with tightening for now. Focus now shifts to the upcoming January 17th meeting.

 

 

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With over 6 years’ experience analysing currency markets, James is now a well-known industry analyst focusing on price action trading and fundamental drivers. Beginning as a private retail trader, James developed a strong interest in understanding the fundamental aspect of the market before pursuing technical trading capabilities which he now uses to identify opportunities over a short-term horizon. Alongside his market experience, James is also IMC certified having achieved the qualification to help further his understanding not only of the markets but the industry as a whole. James has a strong interest in both fundamentals and technicals and uses both forms of analysis in generating and executing trade ideas, with trades generally lasting from a few hours to a few days.

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With over 6 years’ experience analysing currency markets, James is now a well-known industry analyst focusing on price action trading and fundamental drivers. Beginning as a private retail trader, James developed a strong interest in understanding the fundamental aspect of the market before pursuing technical trading capabilities which he now uses to identify opportunities over a short-term horizon. Alongside his market experience, James is also IMC certified having achieved the qualification to help further his understanding not only of the markets but the industry as a whole. James has a strong interest in both fundamentals and technicals and uses both forms of analysis in generating and executing trade ideas, with trades generally lasting from a few hours to a few days.

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