USD longs reduced, GBP shorts declined - Rabobank

Analysts at Rabobank note that USD net long speculative positions fell to the lowest level so far this year of just 2.34k last week, according to IMM Net Speculators’ Positioning as at July 11, 2017.

Key Quotes

“This was even before comments from Fed Chair Janet Yellen were interpreted as relatively dovish by the market and before inflation and retail sales published on Friday surprised on the downside. These data cemented our conviction that the Fed will refrain from raising rates further this year following two hikes in 1H.”

“Market speculators increased their bullish bets on the euro to a year-to-date high last week. The euro remains supported by fading political risk in the Eurozone (Macron’s victory in the French presidential election was a major boost for the single currency), signs of economic recovery in the bloc and rising market speculations that the ECB will start to withdraw its unprecedented monetary policy stimulus. Last week the Wall Street Journal reported that ECB President Draghi will speak at Fed’s policy conference in Jackson Hole next month when he may signal the end of QE program. EUR/USD traded as high as 1.1489 last week before trimming its gains.”

“GBP shorts declined further last week. While recently published UK data have been disappointing, GBP/USD has been driven by rapidly fading market expectations that the Fed will raise rates in the second half of the year with the implied probability of a hike in December falling below 50%. Diminishing concerns that the UK could be heading for a hard Brexit also contributed to gains in GBP/USD, which broke above the 1.30 level last week.”

“Only a few months ago speculators were betting heavily that the CAD will depreciate against the US dollar. However, speculative CAD short positions have been largely unwound as net bearish bets plunged to just 8.6k. It is reasonable to assume that the market is now long CAD after the BoC raised the policy rate by 25bps to 0.75% last week and sent a hawkish signal. USD/CAD ended last week trading at the lowest level since May 2016.”

“With the BoJ indicating that it has no intentions to start normalising its monetary policy, net short JPY positions increased to the year-to-date high - just before USD/JPY made a reversal on the back of dovish comments from Fed Chair Yellen and soft set of US data.”

“An impressive rally in AUD/USD last week to the highest level this year was an encouraging signal for the AUD bulls with long net positions rising further to 36.8k from 32.41k.”