Non-Commercials increased their net short positions in the Euro last week selling further 9k contracts to take the total position to -16k contracts. EUR has been under steady selling pressure over recent weeks due to increased political uncertainty in the eurozone and the growing policy divergence between the Fed and the ECB.
Over the week ahead the market is bracing for the submission of the Italian budget proposal as well as the European Summit by which time the UK is to agree on a solution to the Irish border issue. Failure to agree a solution to the issue will exponentially increase the chances of a no deal Brexit which is likely to weigh on both GBP and EUR.
Non-Commercials increased their net short positions in Sterling last week selling a further 1k contracts to take the total position to -60k contracts. Despite the ongoing Brexit uncertainty, short positions in GBP are down by around 25% over the last month. The market is now waiting to see whether the UK government can agree on a solution on the Irish border issue in time for the European Summit this week. Alongside this, we also have a raft of UK data with labor market readings, CPI and retail sales all due with main focus on whether wage growth will tick up to the key 3% level.
Non-Commercials increased their net short positions in the Japanese Yen last week selling a further 1k contracts to take the total position to -115k contracts. Selling pressure in JPY has gained momentum over recent months as the rise in US yields has weighed on JPY. With the BOJ maintaining its stance that rates will remain at present low levels for an extended period of time, the policy divergence between the Fed and the BOJ is leading to investor outflow.
Non-Commercials reduced their net short positions in the Swiss Franc last week buying 600k contracts to take the total position to -13k contracts. CHF has been under steady buying pressure over the previous few months as the market has preferred to use CHF as a safe haven asset over JPY. Ongoing risks around Brexit, the Italian budget and the trade war between the US and China continue to drive safe haven demand in CHF. The threat of these issues was clear last week in the dramatic sell-offs seen across global equities which have been linked to a culmination of these elements.
Non-Commercials increased their net short positions in the Australian Dollar last week selling further 1.5k contracts to take the total position to -73k contracts. AUD has been under heavy selling pressure since investors turned net short again in Q2. Continued trade tensions between the US and China, Australia’s largest trading partner, have heightened concerns about the health of the Chinese economy. While the RBA maintains an optimistic outlook, the bank is no closer to moving rates higher and continues to highlight obstacles within the domestic economy such as low wage growth and high level of household debt.
Non-Commercials reduced their net short positions the Canadian Dollar last week buying 6k contracts to take the total position to -12k contracts. Success with the NAFTA renegotiations between the US and Canada have buoyed market expectations of a further BOC rate hike at the upcoming BOC rate meeting this month. Ahead of that meeting, traders will be watching CPI data this week which, with rate pricing for October around 90%, has the potential to cause a sharp downward repricing if we see any huge negative surprise.