EUR shorts still unwinding; for now - Rabobank

Janet Foley, Senior FX Strategist at Rabobank, noted that the 'Commitment of Traders Report' showed a lower reading in the Euro short space.

Key Highlights:

•EUR shorts dropped for a fourth consecutive week albeit at a slower pace than the previous week. Stronger than expected German and Eurozone inflation data re-opened the debate about the appropriateness of easy ECB policy settings at the start of the year. While European political concerns also ebbed in early January, there are some renewed concerns regarding France’s Presidential elections, and this could revitalise political risk for the EUR.

•Net USD longs crept a little higher having fallen back to the lowest level since October 2016 the previous week. A pledge by Trump to outline new tax plans promises to lend additional support.

•Yen bears have retreated for six consecutive weeks as post-US election carry trades reverse. That said, hopes that Trump may address reflation in the US in the next couple of weeks could return some enthusiasm for the carry trade.

•Bearish bets against the pound increased last week. The spot market had regained some of its composure on the back of PM May’s Brexit speech on January 17 but nervousness could increase as PM May’s March 31 deadline for triggering article 50 nears.

•Having briefly jumped into positive territory in late December, CHF positions fell back into negative ground before the end of the year. Shorts last week dropped having hit their highest levels since mid-December the previous week.
 
•CAD positions held in positive ground for the third consecutive weeks. Better jobs and trade data is encouraging but the new US administration should keep focus on risks to the economy given the new US Administration. AUD long positions climbed for a fourth consecutive week on the back of higher commodity prices and the recent better trade data.

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What is the Commitment of Traders Report?

The US Commodity Futures Trading Commission (CFTC) release a commitment of traders report once a week on a Friday afternoon with the report taking a snapshot of positioning at the close of business on the previous Tuesday. The rationale for the report is better inform the public and improve transparency of the futures markets.

Large hedgers (Commercial) and speculators (Non-Commercial) are required to report their positioning. The non-commercial positioning is of particular interest as it provides a proxy forbroader speculative activity. In the case of the foreign exchange market, the notional volume of transactions on the IMM is tiny relative to the turnover in the interbank foreign exchange market.