Non-Commercials reduced their net long positions in the Euro last week selling 12k contracts to take the total position to 11k contracts. The record long position that built up in EUR over the first few months of the year, on expectations of faster ECB monetary tightening, has now been reduced by around 90% as the market has reacted with disappointment to the lack of policy adjustment by the ECB. At its last meeting, the central bank reaffirmed its message that it will wind down QE by year end though it again highlighted that rates will stay low until at least summer 2019. However, with data continuing to surprise to the downside, the market is fearful of these dates being pushed out especially in the context of heightened political turmoil in Germany and Italy and regarding Brexit negotiations also.
Non-Commercials increased their net short positions in Sterling last week selling a further 11k contracts to take the total position to -59k contracts. GBP has been under heavy selling pressure recently as Brexit negotiations have taken a turn for the worse amid heightened political uncertainty in the UK. Discord among Theresa May’s government has increased the chance of the UK leaving the EU with “no deal” which is causing the current investor outflow we are seeing.
At its last meeting, the BOE raised rates above 0 .5% for the first time in a decade while signaling further rate hikes to come. However, the projections seem to rule out any further rate hikes this year while the BOE awaits the outcome of Brexit which Carney highlighted as a key concern for the bank.
Non-Commercials reduced their net short positions in the Japanese Yen last week buying a further 6k contracts to take the total position to -63k contracts. JPY has been net bought now for two consecutive weeks as safe-haven buying kicks in. The market has also reacted to the BOJ adjusting its YCC target at its last meeting with the upper limit for the bank’s “near zero” target now lifted to 0.2% from 0.1% prior. There had been expectations ahead of the meeting that the bank was going signal a shift in policy, however, the bank was keen to stress that the move is not a precursor to tightening and that rates will stay low for an extended period of time.
Non-Commercials increased their net short positions in the Swiss Franc last week selling a further 1.5k contracts to take the total position to -46k contracts. CHF has only seen minor position adjustments over the last month during the course of quiet summer trading. Safe have inflows have provided upside pressure with CHF rising around 2% against the Euro since last week, reportedly attributed to Russian investors, while the SNB’s continued commitment to maintaining an easing presence in the market has capped any advances. If CHF continues to strengthen amidst safe-haven inflows, the chance of SNB intervention grows higher.
Non-Commercials increased their net short positions in the Australian Dollar last week selling a further 3k contracts to take the total position to -55k contracts. AUD has been under steady selling pressure over the last few months as the escalation in the trade stand-off between the US and China has weighed on the Australian economic outlook due to the fall in commodity prices and worsening of Australia’s terms of trade. The RBA has continued to highlight the challenges facing the domestic economy from low household incomes and weak wage growth which investors feel will keep the bank side-lined on rates until next year.
Non-Commercials reduced their net short positions in the Canadian Dollar last week buying 7k contracts to take the total position to -25k contracts. While the market remains net short CAD, downside exposure has now been reduced by around 50% over the last month as reports around the ongoing NAFTA negotiations have been more encouraging, including talk of a potential forthcoming deal. Data continues to print strongly for Canada which is supporting the BOC’s view that further rate hikes will likely be necessary.