Deutsche – IMM Commitment of Traders : Dollar positioning levels out; NZD & CHF remain popular shorts: FXWW

From the FXWW Chatroom – The latest IMM data (as of Tuesday 17 July) showed a leveling out in dollar long positioning, with the most significant change in individual FX positioning shown in JPY where investors increased short positioning as USDJPY approached the 113 level. This put JPY short positioning at moderate levels of ~30% of open interest. This helped to fuel short covering towards 111.41 on Friday’s news that BoJ would widen its tolerance band for 10y yields under its yield curve control policy, which the market effectively interprets as a tightening of policy. This may involve adjusting the YCC program to allow for a more natural rise in long-term rates, and is informed by the high cost of prolonged easing, according to Reuters.

Notable shorts remain CHF and NZD, both near 40% of open interest. CHF short positioning plays into our reasoning of why the Swiss franc may serve as a better safe haven than JPY (“Is CHF the safest haven now”, 19 Jul 2018) given an increased prominence of Japanese pension funds in shifting cash back into foreign equities (“So, who is buying USD/JPY?”, 11 Jul 2018).

Although spec WTI positions have come in surprisingly unchanged, we note ICE Brent data shows a more significant reduction in net length from a peak of 484k contracts on 24 April to 214k net long contracts on 17 July. This more than halving of Brent net length puts positioning back towards neutral relative to the upward-sloping trend in net positioning since 2011. Spec gold positioning fell to the lowest level since Jan 2016 when gold traded 1080/oz.

Traders in Financial Futures data showed a divergence in behavior as leveraged funds added to USD long positions, and asset managers added to USD short positions. Although leveraged fund activity outweighed asset managers, we might interpret this as a sign of near-term exhaustion in concert with the fact that this week’s new DXY high (95.65) only just surpassed the previous high (95.53) before retreating in a somewhat rapid fashion. As an additional warning sign, we note that the 10-week sensitivity of EURUSD in response to leveraged fund EUR short positioning has fallen to near zero from a peak at the start of June.

We also note leveraged funds and asset managers are well-aligned in modest JPY short positioning, and quite heavy CHF short positioning, especially for asset managers for whom it is nigh on 90% of open interest. AUD and NZD shorts are also held in common between the two groups. Finally, leveraged funds made a sizable increase in RUB short positioning to 62% of open interest, a level not seen since Sep 2015.

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