Weekly COT Analysis: EUR Net Short Largest In Two Years

The CFTC report shows Traders are bullish the USD, holding net shorts in EUR, JPY, AUD, CHF, CAD and GBP. The only position to materially change was a build in the net short EUR position, but that was enough to drive the net long USD to a fresh high of $44bn. This data suggests a slow build in most USD long positions and warns of further USD upside risk. The net short EUR position widened to $26bn, the largest in 2 years.

Stability in the net short AUD and CAD positions this week obscures the divergence in risk appetite toward the two commodity currencies, as investors have pared back risk in CAD cutting both longs and shorts, while adding to positions on both sides for AUD. As of Tuesday the net short JPY position was $7.8bn, having narrowed for four consecutive weeks in a reflection of lingering concerns related to the events from mid October. The changes in sentiment underscore the extent to which the subsequent BoJ policy announcement was unanticipated by market participants.

EURUSD Outlook Bearish

Net short EUR position widened to $26bn, the largest in 2 years. The position is large and vulnerable to short covering; however as the position is still building each week, the risks lie to further near term EUR downside.  Index & Strength indicators remain anchored at lows and although Momentum has come off lows suggesting that selling pressure was declining. The hawkish FED statement saw sellers re-emerge as we retest year to date lows We will add to shorts on a Daily close below the NFP low print.

USDJPY Outlook Bullish

Aggressive measures from the BoJ and GPIF will support the sharp pick-up in Japanese risk appetite, with reallocation trends and lower real yields driving the cross higher. As of Tuesday the net short JPY position was $7.8bn, having narrowed for four consecutive weeks in a reflection of lingering concerns related to the events from mid October. The changes in sentiment underscore the extent to which the subsequent BoJ policy announcement was unanticipated by market participants.

GBPUSD Outlook Bearish

The Bank of England will hold its November decision next week. The BoE won’t release its quarterly inflation report until November 12th, but the BoE’s decision on the 6th should incorporate the main conclusions from that report. Expectations of a November 2014 rate hike have decreased significantly, declining inflation and moderating growth data should keep BoE policy comfortably on hold. Indicators remain firmly bearish shorts on a break of year to date lows is the favoured trade.

USDCAD Outlook Bullish

The data in Canada continues to show a mixed picture. Looking through short-term volatility, the market expects labor market conditions to improve gradually, helped by modest but steady growth as suggested by the latest business outlook survey. Indicators remain bullish as price consolidates at highs. Adding longs on a break and close above year to date highs is the favoured trade.

AUDUSD Outlook Bearish

RBA decision this week, market consensus is that they will likely retain its language that the AUD exchange remains uncomfortably high by historical standards. Price remains range bound in a 300 pip range. Indicators remain firmly to the downside and we will look to initiate new short exposure on a break and close below year to date lows.

USDCHF Outllok Bullish

Wednesday’s hawkish Fed meant the end of the central bank acting as liquidity provider of last resort to markets. The wording of the statement suggested that absent a huge disruption, more QE is off the table. Momentum & Index indicators remain at highs signaling that the market is still very bullish on this pair. Longs on a break and close above year to date highs are the favoured trade.