Non-Commercials increased their net long positions in the Euro last week buying a further 3k contracts to take the total position to 4k contracts. EUR has now been net bought for three of the last four weeks though upside exposure is only around 2% of the record long position that built up last year. Though the ECB has stuck it is plan so far, announcing a reduction in monthly asset purchases ahead of ceasing purchases completely by year end, the focus for now is on political uncertainty in the Eurozone with the disappointing Italian budget proposal of 2.4% of GDP. Alongside this, the market is still grappling with the risks around Brexit as the prospect of a “no deal” outcome grows increasingly likely.
Non-Commercials reduced their net short positions in Sterling last week buying 12k contracts to take the total position to -67k contracts. Positioning in GBP has been fluctuating wildly over recent weeks as the market continues to trade reactively to Brexit developments. Focus this week will be on the UK Conservative Party Conference which commenced on Sunday with PM May due to speak on Wednesday amidst ongoing disagreement in her party.
Non-Commercials increased their net short positions in the Japanese Yen last week selling a further 20k contracts to take the total position to -84k contracts. This latest increase in JPY shorts (which saw JPY downside exposure grown by over a third) came amidst a perfect storm of factors such as dollar funding requirements, quarter end flows and an unwinding of safe haven trades as US equities soared higher. However, recent data from Japan has been mostly positive and these effects should prove transitory.
Non-Commercials reduced their net short positions in the Swiss Franc buying 2k contracts to take the total position to -16k contracts. CHF downside exposure has been reduced by over 50% over recent weeks as the market has preferred to use the Franc as a safe haven location. Risks around the Italian budget and Brexit negotiations should continue to keep CHF bid though an improvement in risk appetite over recent weeks has taken some pressure off for now.
Non-Commercials increased their net short positions in the Australian Dollar last week selling a further 4k contracts to take the total position to -72k contracts. AUD has been under heavy selling pressure over recent weeks with short exposure having been increased by over 30%. At the upcoming RBA meeting this week, policy is expected to remain unchanged with little alteration to the bank’s statement. While some recent data points have surprise to the upside (inflation, unemployment), the bank still faces stubborn challenges within the economy such as weak household income and high levels of household debt as well as cooling property prices. With this in mind, not looking for anything majorly market moving from the RBA this time around.
Non-Commercials reduced their net short positions in the Canadian Dollar last week buying a further 11k contracts to take the total position to -20k contracts. CAD downside exposure has been cut by around 50% over the last few months in line with the market’s expectations for further BOC rate hikes this year (October rate hike pricing is now around 80%). NAFTA negotiations which have been a major source of uncertainty for the BOC and CAD traders over recent months look to have subsided now with the US and Canada reaching a new deal last week just in time to meet the deadline needed to get a new NAFTA bill approved by the current Mexican administration.