Weekly COT Analysis: USD Longs Pared For Second Week

Investors grew less bullish on the US Dollar for the second straight week as growing fears over global growth and plunging oil prices sent investors into safe haven assets and prompted them to exit heavy strong US Dollar bets.

The net amount of investor cash wagering the USD will rise against rivals fell 10.8% to $42.4B in the week ended Dec. 9, according to CFTC data. The moves unwound dollar gains on the back of robust US jobs data for November that had vaulted the USD to fresh multi-year highs against the yen and euro just one trading session earlier.

Accordingly, bearish euro and yen wagers thinned last week by 14.1% (EUR short 136,912 vs 159,279) and 6.7% (JPY short 104,136 vs 111,160), respectively. Net bullish USD positions should continue, as investors reduce risk and pull back on their largest bets, which include USD longs, ahead of this week’s FOMC meeting.

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EURUSD OutlookBearish

Summary: Market believes EUR is likely to remain a sell over the course of 2015 as ECB easing remains a prominent possibility and political risks loom large. Comments from ECB members suggest the committee is moving towards further easing in January. What’s more, with Greek elections now before the end of the year, political risks are rising in Europe, which could add a risk premium to EUR. All this said, EUR short positioning although reduced is still somewhat stretched, so there is a risk of a profit taking pullback into year end.

Strength consolidates at lower levels, Index indicators continue pulling back from extreme low levels and the Momentum bullish cross highlights the continued potential for the near term fading of downside pressure


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eur2014-12-14 20_41_21-Reuters - currency futures positioning

GBPUSD Outlook –  Bearish

Summary:  Market remains bearish on GBPUSD. The BOE believes inflation could fall further, and markets have pushed back their estimate of the timing of the first hike. What’s more, the latest OBR forecasts suggest that the UK’s fiscal position is worse than previously thought. Further austerity is likely, which will weigh on UK growth, supporting the markets bearish view. We will watch CPI this week

Strength and Index indicators consolidating at lows supporting bearish continuation, Momentum has ticked up from lower levels suggesting slower progress short term.

2014-12-15 10_31_09-

gbp2014-12-14 20_42_27-Reuters - currency futures positioning

USDJPY Outlook – Bullish

Summary: The JPY is currently being driven by local risk appetite. Should there be a round of profit taking in the equity markets then this could bring the JPY higher from here, bringing some near term risks to our medium term bearish JPY view. Abe secures a landslide victory in Sunday’s election on very low turn out. With an Abe victory priced the focus may turn to the weaker growth outlook. This may be determined by weakness in Japan’s trading partners. This week we will be watching the inflation print.

Strength and Index bullish and consolidating at recent highs. Momentum continues retreat from recent highs.

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jpy2014-12-14 20_41_46-Reuters - currency futures positioning

USDCHF Outlook – Bullish

Summary:  Market expects the Fed to drop the ‘considerable’ phrase at the upcoming FOMC meeting, which alongside some more hawkish comments and strong US data has boosted USD. Worth noting that with USD long positioning is stretched, there could be room for a pullback, or at least a pause, into year end, but we would use any dips in USD as a buying opportunity. Higher US rates is not the crux of the strong USD argument, it’s US growth, which is likely to remain strong

Strength and Index indicators consolidate at highs suggesting trend continuation. Momentum ticking to the upside moving away from recent convergence

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chf2014-12-14 20_42_58-Reuters - currency futures positioning

AUDUSD Outlook – Bearish

Summary:  Market expects AUD to remain weak for several reasons. First, Chinese growth remains soft. PPI has printed negative for 33 months in a row, and the recent rate cut has not loosened financial conditions. Second the latest news on Australian banks suggests that they could have to raise capital, providing further headwinds to growth. Third, iron ore prices have barely recovered. Soft commodity prices should also weigh on AUD. At the end of last week RBA Governor Stevens voiced a preference for the AUDUSD to trade at 0.75 v 0.85

Strength and Index consolidate at lower levels, Momentum consolidates at lows, bearish trend remains intact for now confirmed with new year to date lows in price.


2014-12-15 10_28_10-

aud2014-12-14 20_43_19-Reuters - currency futures positioning

USDCAD Outlook – Bullsih

Summary:  Oil prices have fallen over 40% since the start of June, yet CAD is down only 5% against USD, the least of any G10 currency. CAD’s exposure to a robust US economy renders it the strongest commodity currency, market believes USDCAD is likely to rise as oil prices decline.

Strength and Index remain bullish consolidating at recent high, Momentum also retesting recent highs supportive of continuation in bullish trend and new year to date highs in price.

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cad2014-12-14 20_43_42-Reuters - currency futures positioning