Weekly COT Anlaysis: EUR Shorts Pullback From Lows

For the first time in several weeks traders took profits on short EUR positions; driving the net position back to ‐$26bn. The shift warns of a slowing in bearish EUR momentum, suggesting EUR will need a fresh catalyst to push it through its recent lows.

Bullish USD sentiment stabilized at $45bn this week; with mini‐mal week‐over‐week changes. All currencies are held net short against the USD; however the only positions of significant size are EUR and JPY, followed by AUD.

Traders are bearish GBP, however the net short of ‐$1.3bn, leaves ample room to be built out as the fundamental outlook has deteriorated. This warns of a potential build in downward GBP momentum.

CAD traders added to risk, adding to both gross long and short positions, but favouring the short side. The net short position is now at ‐$1.2bn, suggesting a preference to be short CAD.

Traders added to already short JPY positions, driving the net position to $9bn, well within its recent range.

AUD traders made no changes this week; retaining a relatively large net short of ‐$3.3bn.


Summary: Disinflationary risks remain high in the Eurozone but the tone of EUR over the coming week may be set by the release of 3Q GDP. With Germany and France narrowly missing recession level prints, there are risks of a near term technical rebound, given that EUR short positioning continues to register extreme levels. Market remain bearish over the medium term as structural flows are expected to remain unsupportive.

Strength Index & Momentum Indicators continue to register bearish depressed readings although retreating from extreme readings.






The Bank of England’s inflation forecast was dovish, perhaps somewhat more so than markets expected. The central bank acknowledged a high risk that inflation falls below 1%Y, and hinted that a first hike is unlikely before 4Q15. This has weighed on GBP. As a result, the upcoming inflation print and BoE minutes are likely to be closely watched for affirmation of the news from the Inflation Report. Weak construction data at the end of the week took GBP to new lows on Friday

Strength confirms bearish cross with new lows. Index & Momentum bearish






The political situation in Japan has developed over the past week, with speculation on a snap election expected by the end of the year and consideration of delays in the sales tax hike. The Nikkei continues to push higher, providing USDJPY with some support; however, caution is advised on long USDJPY positions at the moment. JPY positions were flat ahead of the BOJ meeting, suggesting that USDJPY positions are fresh, so any position unwinding ahead or post Sales Tax/Elections news could be swift and have a sizeable impact USDJPY.

Strength indicator retreats from bullish elevated levels, Index makes new bullish cross.






November 30, the Swiss public will vote on whether they want the SNB to hold 20% of their assets as gold, which would limit the monetary policy capabilities of the bank and possibly induce a deflationary shock. Market retains the view that the SNB is credible and would defend the floor if necessary, preventing a move below 1.20.

Strength Index and Momentum indicators remain bullish and elevated.





Falling commodity prices and expected weak growth in China support our bearish view on the Australian economy. The RBA is maintaining its bearish rhetoric against AUD, with Kent repeating that AUD remains overvalued and that the RBA would not rule out intervention. While a mild dollar correction could lead to a higher AUD, we believe that this would be short lived and provide better entry levels for shorts

Strength, Index remain at depressed bearish levels, while Momentum tick s up to attempt a bullish cross.






Although this month CAD reached its lowest levels against USD since mid-2009 (depreciating by circa 6% during the second half of the year), it was still the second best performing currency in the G10 FX space (after USD). This despite the backdrop of material collapse in oil prices, with WTI falling by almost 30% over the same period.

Strength, Index and Momentum remain at bullish elevated levels testing extreme readings.