Non-Commercials increased their net long positions in the Euro last week buying a further 17k contracts to take the total position to 115k contracts. EUR upside exposure continues to develop with the long position having now grown to its highest level on record. Strong Eurozone data continues to bolster investor expectations that the ECB will remove accommodative monetary policy at a quicker pace than is currently forecast. The latest ECB meeting minutes fuelled a rally in the single currency as they revealed that the ECB is considering adjusting its forward guidance early in the year, provided that both the economy and inflation continue with their current momentum. Data focus this week will be on the release of final Eurozone & German CPI for December.
Non-Commercials increased their net long positions in Sterling last week buying a further 9k contracts to take the total position to 25k contracts. Investors continue to buy GBP as a combination of firm data, positive Brexit developments and hawkish BOE expectations have kept sentiment toward the British currency positive. Data has continued to highlight economic strength in the period since Brexit negotiations began, contrary to the many bearish forecasts made as negotiations began. With unemployment continuing to hit fresh lows and inflation rising alongside improvement in a slew of other indicators, there is clear upside risk that the BOE will raise rates at a quicker pace than is currently forecast.
Non-Commercials increased their net short positions in the Japanese Yen last week selling a further 4k contracts to take the total position to -126k contracts. The JPY short position continues to hit fresh record highs as investors trade the monetary policy divergence between the BOJ and the majority of the other G10 central banks. Despite the continued build in short exposure there are some signs that the BOJ might be considering a shift in course. Following recent comments from BOJ governor Kuroda regarding a “reversal rate” (where interest rates are so low they stop stimulating the economy) the BOJ took the market by surprise by announcing the tapering of its monthly asset purchases from Y200bln to Y190bln.
Non-Commercials increased their net short positions in the Swiss Franc selling a further 6k contracts to take the total position to -22k contracts. The CHF short position is fast approaching the extreme levels seen at the end of last year. Surging equity markets and positive risk appetite have seen a diminished safe haven demand for the Franc which, will no doubt please the SNB who at their recent meeting reaffirmed their commitment to maintaining an easing stance. However, there are upside risks with the bank having raised its inflation forecast. Traders will be keeping a close eye on forthcoming SNB meetings and member comments for any early warning signs that the bank is considering a shift in policy.
Non-commercials reversed their net short positions in the Australian Dollar last week buying 25k contracts to take the total position to 5k contracts. Positioning adjustments in the Australian Dollar have been extremely volatile over recent months, as the market dismantled the large long position that had built up over the first three quarters of 2017. Despite generally positive data and a hawkish shift across most of the G10, the RBA has been reluctant to raise rates and continues to highlight dangerously elevated levels of household debt in the country, which threaten the economy. With wage growth still weak and savings rates falling, it is a very difficult environment in which for the bank to consider a rate rise. Firm commodity prices and generally strengthening CPI however are seeing hawkish expectations recovering somewhat.
Non-commercials increased their net long positions in the Canadian Dollar last week buying a further 3k contracts to take the total position to 17k contracts. The large CAD long position that built up over the course of the BOC’s double rate rise in 2017 has since been greatly reduced as data weakness and uncertainty and NAFTA negotiations have seen investors dialling back their hawkish BOC expectations. However, at its upcoming rates meeting this week the BOC is widely expected to lift rates a further .25% in response to strengthening inflation. Traders will be keen to receive the accompanying monetary policy statement to judge the likely rate path for the year ahead.