Weekly COT Analysis: EUR Shorts Pullback But USD Still Bouyant

The CFTC Commitments of Traders report for the week ending on November 25th showed a new record high implied net USD long position, which reached US$49.4 bn from US$47.6bn the week prior. This, however, took place on the back of relatively small changes in positioning for most currencies.

  • The JPY saw the largest variation in overall positioning, with net JPY shorts increasing to -104.4K from -92.4K the week prior.
  • The GBP and AUD run the same fate as the JPY, with net sterling shorts increasing to -30.7K from -22.8K, and net AUD shorts extended to -44.1K from -37.6K outstanding on November 18th.  CHF also endured a decline in investors’ confidence in their outlooks, which translated into modest net short extensions to -2.3K net.
  • The EUR and the CAD were the only exceptions to the broader changes in positioning favouring USD longs. The former registered short covering to the tune of 3.7K contracts, which landed net EUR shorts at -165.1K, while net CAD shorts were scaled back to -16.3K from -19.5K the week prior.

EURUSD OutlookBearish

Summary: EUR showing some more backbone against the USD but suspect gains will slow to a crawl and may well completely stall into Thursday’s press conference.  High probability Draghi announces some fresh interim easing measures such as easier TLRTO terms, a corporate bond purchase plan and a willingness to buy sovereign bonds if the ECB’s balance sheet is not expanding in line with their plans

Strength and Index indicators pulling back from extreme low levels, Momentum crosses and highlights the short term fading of downside pressure

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EURORTRS

GBPUSD Outlook –  Bearish

Summary: GBPUSD continues to drift around mostly 1.57-1.59, avoiding new lows for now. A pretty low key domestic data calendar this week. Thursdays BOE rate decision release expected to be a non-event BoE rate hike expectations have been scaled back to the point that the UK-US short term government bond spread is at its lowest since mid-2006

Strength ticks lower testing very depressed levels with Index indicators at lows supporting bearish continuation, Momentum moderates at lower levels suggesting slower progress short term.

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2014-12-02 10_59_28-Reuters - currency futures positioning

USDJPY Outlook – BULLISH

Summary: Finance Minister Aso delivered the first clear warning in some time on excessive yen appreciation, seemingly help stall the USDJPY rally. The Moody’s downgrade added a note of caution too. There is no reason to expect a sharp reversal but consolidation seems warranted near term, especially with most US data this week falling short of consensus, leaving US 10 year yields at one month lows. All eyes now on US Nonfarm Payroll data end of the week.

Strength ticking back up, Index bullish and Momentum consolidates at recent highs. Indicators suggest market positioning better matched to price but still a lag keeping the pressure to the upside for now.

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2014-12-02 11_10_10-Reuters - currency futures positioning

USDCHF Outlook – BULLISH

Summary: The relief rally in EURCHF after the rejection of the gold referendum has proven short-lived. The prospect of ECB sovereign asset purchases, while more of a 2015 H1 story, short keep the cross pressured. Negative deposit rates likely to be on the SNB’s list of policy options in the near future to stem the tide of EURCHF sales. A potential negative rate move by the SNB keeps the USDCHF well supported

Strength and Index indicators register new highs suggesting trend continuation. Momentum pulling back and converging suggesting slower upside progress for now.

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2014-12-02 11_15_41-Reuters - currency futures positioning

AUDUSD Outlook – BEARISH

Summary: Pessimism over China’s growth outlook is unlikely to dissipate quickly, with any improvement likely to be gradual. This should continue to cap AUDUSD rallies. While a degree of RBA rate cut pricing will persist, it could well be trimmed if GDP prints near our 3.0% y/y forecast. The RBA on hold last night and they softened the language to “a lower exchange rate is likely to be needed to achieve balanced growth in the economy.”

Strength and Index at lows, Momentum retreats from extreme levels, bearish trend remains supported for now

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2014-12-02 11_20_58-Reuters - currency futures positioning

USDCAD Outlook – BULLISH

Summary: The BOC statement is unlikely to have an overly dovish tilt given recent stronger employment trends, above target core CPI, and firmer activity signs in the early Q4 data. The Bank’s statement may well sound more optimistic for a change, a potentially important counter to the recent plunge in oil prices.

Strength and Index remain bullish but retreating from elevated levels, Momentum consolidates at highs supportive of continuation in broad bullish trend.

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2014-12-02 11_29_02-Reuters - currency futures positioning