FX COT Update: Trade Wars Weighing On Risk Sentiment

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EURUSD

Non-Commercials reduced their net long positions in the Euro last week selling 3k contracts to take the total position to 21k contracts. EUR Has been under steady selling pressure over recent weeks as political turmoil in the eurozone, the ongoing trade dispute with the US and a more dovish tone from the ECB have swayed investor sentiment to the downside. The record long position that built up over the first quarter has now been reduced by around 80% reflecting the market’s disappointment with the ECB which said it will keep rates at current levels until at least summer 2019. Investors had been expecting the bank to begin tightening earlier than that but in light of recent data weakness, Draghi said that the current policy will remain in place though it will end QE by the end of the year.

GBPUSD

Non-Commercials reduced their net short positions in Sterling last week buying 2k contracts to take the total position to -38k contracts. This latest adjustment in sterling positioning comes after weeks of heavy selling as political uncertainty in the UK regarding the prominence of the UK PM, as well as uncertainty linked to the ongoing Brexit negotiations, continues to be the main driver of price action with BOE rate hike expectations taking a back seat.

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USDJPY

Non-Commercials increased their net short positions in the Japanese Yen last week selling a further 18k contracts to take the total position to -59k contracts. JPY has been under heavy selling pressure over the last month as the market continues to adjust its view following the BOJ removing the target timeframe from its inflation objective. The move has been interpreted by the market as a sign of the BOJ having lost confidence in its ability to boost inflation. Strangely, despite the ongoing deterioration in risk appetite linked to the US drive trade wars, JPY has not been seeing the typical safe-haven inflows which are likely due to the negative consequences these trade disputes are having on the Japanese economy.

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USDCHF

Non-Commercials increased their net short positions in the Swiss Franc last week selling a further 2k contracts to take the total position to -42k contracts. Positioning adjustments have been relatively muted in CHF over recent weeks with the market preferring to remain short the currency as the SNN continues to reaffirm its commitment to maintaining accommodative monetary policy and a presence in the market to protect against any excessive strengthening in the Franc. The SNB did warn that trade wars driven by the US have the potential to drive unwanted inflows though for now, it looks like this hasn’t materialized.

AUDUSD

Non-Commercials reduced their net short positions in the Australian Dollar last week buying 400 contracts to take the total position to -40k contracts. AUD has been under consistent selling pressure over recent weeks as the US trade war with China, Australia’s largest trading partner, has clouded the economic outlook and weighed on commodity prices which have reduced the country’s terms of trade. While the RBA has confirmed that it now views the next move in rates as an increase, there is still no clearer indication of when such a move will be as the bank continues to highlight weaknesses in the economy.

USDCAD

Non-Commercials reduced their net short positions in the Canadian Dollar last week buying 5k contracts to take the total position to -48k contracts. This latest adjustment in CAD positioning comes after weeks of heavy and sustained selling in CAD as the market reacts to the ongoing trade dispute with the US.  All this comes despite the BOC having raised rates again at its last meeting alongside signaling its intention to raise rates further over the rest of the year. Again, it seems that rate movements are taking a backseat to the ongoing trade disputes which have taken center stage as the markets main focus.

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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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