Forex Institutional Positioning Update

GBP Shorts Building Despite Better Brexit News

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EURUSD

Non-Commercials increased their net short positions in the Euro last week selling further 2.4k contracts to take the total position to -33k contracts. Eurozone growth was weaker than expected over the 3Q printing just 0.2% quarter on quarter, marking its lowest level since 2014. However, inflation data over October was higher than expected with HICP headline inflation printing 2.2% from 2.1% prior, while core inflation also rebounded, moving up to 1.1% from 0.9% prior. At its latest meeting, the ECB recently acknowledged the “somewhat weaker” conditions in the economy, though maintained its view that risks to the outlook are “broadly balanced,” a view which has been reflected in recent data.

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GBPUSD

Non-Commercials increased their net short positions in Sterling last week selling further 5.5k contracts to take the total position to -53k contracts. GBP price action continues to be reactive to headlines around Brexit with recent comments that a Brexit deal is likely to be struck by November 21st, has propelled price higher recently. At its recent meeting, the BOE highlighted the increased risks from Brexit which they say have increased since the last meeting along with the rising negative effects of global trade wars. However, the bank’s statement was generally positive with the bank noting that improvements in the economy over recent years meant that accommodative policy was no longer necessary and further rate increases are required. This week, traders will be watching 3Q GDP due on Thursday which is forecast to rise 0.6% quarter on quarter.

USDJPY

Non-Commercials reduced their net short positions in Japanese Yen last week buying 1k contracts. At its latest meeting, the BOJ struck a more dovish tone as it lowered its growth and inflation forecasts, noting the risks from protectionist trade policies and global trade wars. Traders had been expecting to receive signs of a forthcoming normalization in BOJ monetary policy, following the tweak to the bank’s YCC target range in July. However, traders were left disappointed as the bank made no further alterations to its policy operations and instead simply reaffirmed that rates would be kept at current low levels for a very long time to come.

USDCHF

Non-Commercials reduced their net short positions in the Swiss Franc last week buying 3k contracts to take the total position to -14.5k contracts. CHF price action continues to be driven by risk flows around the ongoing Italian budget saga, Brexit negotiations, and financial market volatility. With risk sentiment has improved recently, due to more positive Brexit headlines and constructive comments from Trump around a potential China trade deal, CHF has been moving lower. However, the potential for any of these risks factors to escalate sporadically keeps CHF safe-haven inflows a consideration.

AUDUSD

Non-Commercials kept their positions unchanged in the Australian Dollar last week, keeping the total position at -70k contracts. AUD has seen a small recovery higher over recent days on the back of news that Trump is considering a trade deal with China. The trade war has taken a strong negative effect on AUD this year given China’s close trading ties with Australia. Consequently, if the two economic superpowers can strike a deal to put an end to the conflict, AUD will likely be a strong beneficiary. This week traders will be watching the RBA November meeting though little in the way of new information is expected though we might hear a more constructive tone from the bank in light of these recent trade war developments.

USDCAD

Non-Commercials increased their net short positions in the Canadian Dollar last week selling a further 2k contracts to take the total position to -10k contracts. The market response to the US mid-term elections will be the driver of CAD this week, given the absence of any key domestic data. Despite the BOC having increased rates for the third time this year at its last meeting, CAD has been under pressure recently as the dramatic declines in oil have come into central focus. Traders had been anticipating one further BOC hike in December. However, if we see oil prices break own further this could put one last 2018 hike in jeopardy.

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