Weekly COT Analysis: USD Longs At New 52 week Highs

The net long USD position continued to build this week, climbing to $48bn. All currencies are held net short against the USD; however this is highly concentrated, with the EUR and JPY net short positions accounting for $36bn or 76% of the total.

The net shorts in CAD and AUD, at -$2bn and -$3bn respectively, have stabilized over the last several weeks. For AUD, the paring back in risk, with a narrowing in both the gross long and shorts, suggests some indecision among market participants.

Bearish EUR sentiment is the core theme in the CFTC data; but this week covers only until Tuesday, before President Draghi commented that the ECB will do what they must.

Bearish sentiment toward GBP is gaining momentum, having deteriorated for 7 consecutive weeks, with an accelerated build over the past three. The $2.2bn net short is now at its widest level in 14 months, though still well off the $7.5bn record net short from mid-2013.

The building net short JPY position, now at $10bn, is likely to continue to build and highlights a renewed desire to short JPY


Summary: The Euro met resistance on Friday and declined heavily after a two-day rally. November manufacturing and services growth weakened and were worse than expected, signalling downside risks to the economy. The market focus is now on the ECB policy meeting due early in December especially with ECB’s Draghi confirming Friday the ECB’s commitment to balance sheet expansion.

Strength and Index indicators at lows and support bearish continuation, Momentum converges suggesting slower progress short term.

$EURUSD (Daily)  23_04_2014 - 24_11_2014



Summary: While the UK’s inflation report sounded more doveish the latest set of BoE minutes suggested that the committee itself is more divided, with some members concerned that slack in the economy could erode quickly, driving inflation higher. Nonetheless, we expect GBP to remain weak as there is scope for the market to push back the timing of the first hike further.

Strength  ticks lower with Index indicators at lows and support bearish continuation, Momentum converges suggesting slower progress short term.

$GBPUSD (Daily)  25_04_2014 - 24_11_2014



Summary: USDJPY continues to push higher, expect USDJPY to continue to head higher. The political situation has developed with the sales tax delayed and an election called. Note that JPY positions still remain fairly light, while option volatility has been picking up suggesting that much of the new JPY positioning may be via a the options market.

Strength ticks back up, Index bullish with Momentum ticking back up. Indicators suggest market not fully positioned as price continues to trend aggressively higher.

$USDJPY (Daily)  24_04_2014 - 24_11_2014



Summary: Market maintains a bullish USD view over the medium term, we would continue highlight the risk of a position-driven near-term corrective setback. Hence, we now recommend caution with the sizing of new USD long positions for the next few weeks. However, over the medium term, we still believe that USD should benefit from the growth in the US economy being stronger than the rest of the world. In particular, we will be watching the durable goods orders and PCE, Yellen’s preferred measure of inflation.

Strength and Index indicators at highs suggesting trend continuation. Momentum converges suggesting slower progress.

$USDCHF (Daily)  25_04_2014 - 24_11_2014



Summary: We expect AUD to continue to sell off due to both a decline in commodity prices and signs of a slowdown in China. Iron ore prices have fallen nearly 5% since the start of the month. At the same time, we are seeing signs of weaker demand in China, as evidenced by the latest declines in lending and inflation. Aussie caught a breather Friday on the back of the PBOC rate cut.

Strength register new lows, Index pulls back form extreme levels and Momentum converges suggesting slower progress.

$AUDUSD (Daily)  25_04_2014 - 24_11_2014




Summary: A strong inflation print which comes after continued surprises to the upside in CAD inflation. This is likely to challenge the BOC’s current outlook and lead to some re-pricing of rate expectations.

Strength and Index remain bullish suggesting trend continuation, Momentum pulling back from extreme levels but supportive of continuation in broad trend.

$USDCAD (Daily)  25_04_2014 - 24_11_2014