Forex Institutional Positioning Update

EUR Investors Turn Net Long As ECB Prepares To Slash QE Ahead of Year End Wind Down

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EURUSD

eurusd

Non-Commercials reversed their net short positions in the Euro last week buying 15k contracts to take the total position to 8k contracts. Last week’s change in positioning marks a dramatic shift in sentiment for EUR as the market readies itself for the ECB to announce this week that it is tapering QE to 15 billion EUR per month from the current 30 billion EUR a month. While no other policy adjustments are expected, EUR bulls will be looking for the ECB to reaffirm its message that it intends to lift rates around summer 2019 in line with the prior two meetings. Though recent data has shown continued weakness it is not expected to have any bearing on the bank’s longer-term forecasts.

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GBPUSD

gbpusd

Non-Commercials reduced their net short positions in Sterling last week buying 7k contracts to take the total position to -70k contracts. Last week’s minor profit covering in GBP comes on the back of months of heavy selling pressure, with the market still retaining a strong bearish position in the currency. However, comments from EU Brexit negotiator Michael Barnier who said that the EU is prepared to offer the UK a unique deal have inspired some hope among GBP bulls creating the relief rally we’ve seen in positioning. The focus now will be on the BOE which meets this week. Though no change in policy is expected ahead of the March 2019 Brexit deadline, traders will be keen to hear the bank’s latest assessment regarding Brexit developments and UK data.

USDJPY

usdjpy

Non-Commercials increased their net short positions in the Japanese Yen last week selling a further 6k contracts to take the total position to -52k contracts. Last week’s sales mark the resumption of the bearish trend in JPY following a few consecutive weeks of short covering and safe haven inflow amidst ongoing geopolitical tensions. Despite the moves, the market is still struggling to get a clear reading the BOJ following the bank’s recent meeting where it both tweaked the YCC target to allow for higher bond yields but at the same time clarified that rates would stay at low levels for a very long time.

USDCHF

usdchf

Non-Commercials reduced their net short positions in the Swiss Franc last week buying 4k contracts to take the total position to -40k contracts. CHF has been under steady buying pressure over the last month as safe haven inflow has driven investors back toward the Franc. As the global equity environment continues to display fragility amidst ongoing geopolitical tensions, CHF is back in favor with those seeking safety in the markets, much to the chagrin of the SNB. With EURCHF continuing to forge new lows, investors are growing cautious as they anticipate SNB intervention.

AUDUSD

audusd

Non-Commercials reduced their net short positions in the Australian Dollar last week buying 600 contracts to take the total position to -44k contracts. Recent buying in AUD is rather puzzling given the negative backdrop of a stronger US Dollar, heightened market uncertainty regarding the ongoing trade war between the US and China (Australia’s largest trading partner) and generally subdued RBA expectations. Indeed, the recent move by some Australian banks to raise mortgage rates out of cycle has further clouded the outlook for the RBA. Perhaps governor Lowe’s continued message of optimism is starting to resonate, but for now, the buying in AUD seems out of synch with market drivers and AUDUSD continues to cascade.

USDCAD

usdcad

Non-Commercials increased their net short positions in the Canadian Dollar last week selling a further 1.5k contracts to take the total position to -26k contracts. The latest sales in CAD come despite the BOC’s hawkish statement at its September reading in which the bank clearly signaled that it is on course to raise rates in October. Indeed, while NAFTA renegotiations continue to exert bearish pressure on investor sentiment towards CAD, the BOC highlighted that it might actually be forced to raise rates if NAFTA talks collapse in order to keep inflation steady, which caught the market offside. Traders now await the October 24th meeting which is forecast to see the bank raise rates another .25%.

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