FX COT Update: GBP Longs Rise To Near 2007 Highs

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Hawkish ECB Expectations

 EURUSD

Non-Commercials increased their net long positions in the Euro last week buying a further 5k contracts to take the total position to 145k contracts. This latest positioning increase sees a reversal of the profit taking we saw in the week prior and once again strengthens the view that EUR is poised for further upside. Last week EUR surged higher in response to the ECB’s January meeting despite ECB chief Draghi emphasising the point that he doesn’t expect rates to rise over 2018 noting the uncertainty presented by the “recent volatility in the exchange rate”.  Despite Draghi’s comments, which show that the bank is uncomfortable with recent EUR strength, traders continue to expect the ECB to taper at a quicker rate than currently projected over 2018, keeping EUR demand in place.

 

GBPUSD

Non-Commercials increased their net long positions in Sterling last week buying a further 7k contracts to take the total position to 33k contracts. GBP long positioning is now sitting just off the levels last seen in 2007. A combination of strong UK data, hawkish BOE expectations and diminished political risk from Brexit negotiations is bolstering support for the British Pound. The latest GDP data last week provided a fresh boost for GBP with 4Q GDP coming in at 0.5% vs expectations of 0.4%. Additionally, year on year GDP growth for 4Q stands at 1.5%, beating the 1.4% forecast, with final GDP growth for 2017 sitting at 1.8%.

 

USDJPY

Non-Commercials increased their net short positions in the Japanese Yen last week selling a further 3.6k contracts to take the total position to -123k contracts. JPY has now been net sold for three out of the last four weeks as safe haven inflows have seen a significant dismantling in response to surging equities markets. While the BOJ continues to reaffirm its commitment to easing, there have been some signs over recent weeks that the bank is weighing up a change of course and comments from BOJ chief Kuroda last week that the Yen is “finally close” to the bank’s 2% target could transpire into short-covering going forward.

 

USDCHF

Non-Commercials increased their net short positions in the Swiss Franc last week selling a further 1k contracts to take the total position to -22k contracts. The market has been devoid of any significant CHF news over recent months with CHF trading mainly taking cues from EUR & USD movements. Solid risk appetite has seen investors happy to sell CHF which will be welcomed by the SNB which continues to reaffirm its commitment to easing and to intervention in the market as warranted to prevent any further strengthening of the Franc.

 

AUDUSD

Non-Commercials increased their net long positions in the Australian Dollar last week buying a further 7k contracts to take the total position to 17k contracts. AUD has now been net bought for three consecutive weeks highlight a shift in sentiment towards the currency. While firm commodity prices, better Australian and Chinese data have seen a resurgence in hawkish RBA expectations recently, the strength of AUD presents an obstacle to any RBA tightening. Furthermore, while domestic data has generally been improving, still weak wage growth and low household income remains a challenge for the RBA which makes it unlikely that the bank will be lifting rates in the near term.

 

USDCAD

Non-Commercials increased their net long positions in the Canadian Dollar last week buying a further 5k contracts to take the total position to 23k contracts. The Canadian Dollar has been net bought for three out of the last four weeks now once again highlighting the general shift towards a more favourable risk environment. The BOC recently reassured markets of its commitment to policy normalisation, lifting rates a further .25% as inflation continues to highlight the improved economic environment in the country. The latest inflation data showed that CPI was still sticking around the BOC’s 2% target over the final month of 2017, keeping hawkish BOC expectations intact.

 

 

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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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