Forex Institutional Positioning Update

EUR Shorts Build As Dovish ECB Risks Grow

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Non-Commercials increased their net shorts in the Euro last week selling a further 6k contracts to take the total position to -61k contracts. The main focus this week will be whether the ECB proceeds as expected and announces an end to QE. Back in June this year, the bank altered its forward guidance to announce that QE would be reduced in October before being wound down altogether by the year-end. 

While the bank did indeed press ahead with reducing QE in October and has reaffirmed its intentions to end QE in December, there is a risk that these plans will be postponed in light of continued data weakness in the Eurozone. 

Following a strong start to the year, Eurozone data has weakened sharply over the second half of the year, and while the base case scenario is for QE to be wound down, prudent investors are wary of the dovish risk and if the ECB were to disappoint and keep QE running, this would cause heavy downside pressure in EUR.

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Non-Commercials increased their net short positions in Sterling last week selling a further 1k contracts to take the total position to -40k contracts. The Brexit story which has dominated the GBP trading landscape this year is quickly coming to a head.

The UK Parliament will vote on Tuesday whether to back PM May’s Brexit deal. Currently, the higher likelihood is that the deal will be voted down given the high level of opposition. If the deal is voted down, this will lead to a particularly volatile period for GBP as the chances of the UK leaving the EU without a deal will skyrocket.

It isn’t clear currently what will happen in the event of the deal being voted in, and the market will wait to see whether the PM tries again to pass an amended version or whether we will see a leadership challenge. There is also the potential for a second referendum which could see the UK public voting again on the issue of leaving the EU.


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Non-Commercials increased their net shorts in the Japanese Yen last week selling a further 6k contracts to take the total position to -110k contracts. The BOJ has continued to defend its loose monetary policy adamantly and retains an easing bias despite the recent attention and debate about the risks of maintaining negative rates.

However, both Kuroda and other BOJ officials continue to back the use of negative rates. Indeed, BOJ Deputy governor Wakatabe recently told reporters:

“If necessary, the BOJ should ease policy further without hesitation.”


“If additional easing becomes necessary, there is room to do so.”



Non-Commercials reduced their net short positions in the Swiss Franc last week buying 1k contracts to take the total position to -20k contracts. At this week’s monetary policy meeting, the market is widely expecting the Swiss National Bank’s main policy rates to remain unchanged.

Alongside an unchanged decision, we are likely to see the SNB reaffirm its readiness to intervene in foreign exchange markets as necessary in order to prevent undue appreciation of the Swiss Franc. The Governing Board of the SNB is also likely to continue to emphasize that the Swiss Franc remains “highly valued.“

Finally, the SNB’s short-and-medium-term inflation forecasts stand to be revised around 0.1%-0.2% lower, in light of weaker oil prices seen in recent months, continued strength in the Franc and the recent loss of momentum in domestic economic activity.



Non-Commercials reduced their net short positions in the Australian Dollar last week buying 3k contracts to take the total position to -51k contracts. At its recent meeting, the RBA wheeled out virtually the same message it has been giving over the last few months.

While the RBA maintains a broadly positive outlook, expecting that the next move in rates will be up (though timing is not yet clear), risks and challenges remain, specifically weak wage growth, high household debt, and falling house prices.

However, according to RBA deputy governor Dr Debelle, these risks are slightly more severe and the housing market specifically is major red flag. Debelle said that the declines were “unchartered territory” for the bank. He concluded his speech with a dovish warning saying:

“The Reserve Bank has repeatedly said that our expectation is that the next move in monetary policy is more likely up than down, though it is some way off…But should that turn out not to be the case, there is still scope for further reductions in the policy rate.”



Non-Commercials increased their net shorts in the Canadian Dollar last week buying 4k contracts to take the total position to -13k contracts. At its latest meeting, held last week, the BOC moved away from its earlier projections and ended the year by keeping rates on hold.

At its last rate hike in October, the bank projected that further rate hikes would be necessary though in light of the dramatic declines in oil recently, the BOC felt it prudent to postpone any further increases and instead wait and see what happens with oil.

The news of a planned production cut over the weekend by OPEC and other nations will be welcomed by the BOC though they will certainly want to see prices reversing recent losses before moving back to hiking in the early part of next year.





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