Long USD positions favoured, but have narrowed from previous highs – Scotiabank

FXStreet (Barcelona) - Camilla Sutton CFA, CMT, Chief FX Strategist at Scotiabank, notes that the USD sentiment reflects that markets favour long USD positions but are waiting for a catalyst to drive it another leg higher.

Key Quotes

“As the market anticipates the first Fed hike, we would expect the USD to rally; however once we get closer to the beginning of the tightening cycle the market is likely to shift focus towards how aggressive the Fed can be with subsequent hikes.”

“USD Sentiment—The net long USD position sits at $42.4bn; having narrowed slightly from its largest point at $49bn last November; however the core themes remain:

Every currency is held long against the USD;

The bulk of the net long USD position is held against EUR (57%);

There are early signs of a build against the commodity currencies;

Positions have stabilized over the last several months.”

“This backdrop suggests an environment where sentiment still favours long USD positions but is waiting for a catalyst to drive it a leg higher.”