Non-Commercials increased their net long positions in the Euro last week, buying a further 8k contracts to take the total position to 30k contracts. This latest buying spree of the EUR reflects the market’s relief in response to the announcement by President Trump and EC President Juncker, that the two sides will work together to resolve their trade disputes and dismantle barriers and tariffs. Prior to this meeting, there had been an elevated level of uncertainty due to the escalation in trade conflict, which the ECB viewed as a threat to their policy normalisation. However, in the wake of this announcement, the market seems to have shifted to a more positive outlook, and focus now returns to the ECB which recently reaffirmed its commitment to winding down QE by year-end.
Non-Commercials reduced their net long positions in the Pound last week, selling 8k contracts to take the total position to -47k contracts. Selling pressure on the Sterling has been building over the summer, as the market grows fearful over the lack of progress in the ongoing Brexit negotiations which continue to supersede interest rates as the main driver. Indeed, this latest selling spree came ahead of the BoE’s August meeting, which saw the bank raising rates above 0.5% for the first time in a decade. However, the meeting did see some downward revisions to growth and the constant forecast inflation rate which caused the market to question the likelihood of further BoE rate hikes this year, fuelling some GBP squaring.
Non-Commercials increased their net short positions in the Japanese Yen last week selling a further 15k contracts to take the total position to -74k contracts. This latest wave of selling in JPY reflects two themes: firstly, the improvement in risk sentiment following the meeting between Trump and Juncker and secondly, continued dovishness by the BoJ. At its latest meeting, the BoJ disappointed the JPY bulls who expected a signal that policy was due to change. However, the bank issued forward guidance for the first time on rates saying that they would stay at current low levels for an extended period of time. The BoJ did, however, alter its YCC target to make it more flexible, making the range for its “near 0%” target now as high as 0.2% up from 0.1% previously. The bank clarified that this was not tightening nor a precursor to tightening.
Non-Commercials increased their net short positions in the Swiss Franc last week, selling a further 4k contracts to take the total position to -46k contracts. The Swiss Franc has been under a more consistent selling pressure over the last month as risk sentiment has improved somewhat in light of developments between the US and EU. The SNB continues to reaffirm its commitment to maintaining a presence in the market as necessary to protect against any excessive strengthening of the Franc. However, it has yet to give any signal that it is considering a shift in policy beyond the upward revision in response to inflation forecasts given earlier in the year.
Non-Commercials increased their net short positions in the Australian Dollar last week, selling a further 5k contracts to take the total position to -45k contracts. The AUD has been under steady selling pressure over the last few months as data weakness and ongoing global trade concerns continue to block the RBA from increasing their rates. Indeed, the RBA continues to highlight the obstacles and risks which remain in the domestic economy, leaving investors without any clear signs of when the bank will begin tightening.
Non-Commercials reduced their net short positions in the Canadian Dollar last week, buying 3k contracts to take the total position to -45k contracts. Despite ongoing trade concerns, the CAD has been net bought for two consecutive weeks now, as higher oil prices have added further weight to the BoC’s signal that further rate hikes are likely. Indeed, recent data has been improving. This is apparent when we look at the stronger than expected results for May’s GDP. Focus now shifts to the jobs report due this Friday.