COT CURRENCY REPORT
AUD, NZD & CAD:
The AUD suffered the biggest outflow amongst the major with the CFTC data updated until Tuesday the 8th of June, which should arguably not be surprising given the prior outperformance in the currency before that happened.
This week the focus for the AUD turns to the incoming Employment report where labour data has been touted by many as the most important consideration for the RBA regarding potential policy changes or updates. For the NZD we have Q1 GDP data coming up which should provide us with an interesting outcome on our AUDNZD short trade.
The recent underperformance of the NZD has been quite surprising, and our view that the fundamental outlook points to further strength has been shared by numerous investment banks. We’ll see whether GDP data is what the NZD needs to move back in line with its underlying bias.
For the CAD, positioning is something that we are focused on, especially with the CAD trading “elevated” against numerous currencies, we need to be mindful of some possible mean reversion.
JPY, CHF & USD:
Our fundamental outlook for the US Dollar has shifted from Weak Bearish to Neutral. The assessment of risk to the currency is more balanced in our view as we head closer and closer towards potential tapering by the Fed. Apart from that, real yields are expected to remain a key driver in the short-term and something we will use for potential short-term direction bias alongside incoming economic data points.
This week, the main event for the US Dollar will of course be the upcoming FOMC meeting, where the elephant(s) in the room will be the massive upside surprises in US CPI readings compared to the FOMC’s March projections, as well as what the bank will have to say about tapering discussions (those ones that Fed Powell said they haven’t been having but the April minutes showed they have)
For the JPY, the ongoing divergence between US10Y and the safe-haven currency will be a focus point of ours this week. As the Fed and quad witching is in the mix this week we need to keep safe-haven flows in mind this week as a potential supporting factor if equities see some jitters.
GBP:
Even though the bias for Sterling remains titled to the upside, as the third largest net-long position among the majors we do need to be mindful of the current short-term risks for the currency.
We received confirmation that the UK’s planned reopening on the 21st of June will be delayed by four weeks. This was already touted last week so the impact might be lesser this week, and also due to the fact that it won’t derail the economic recovery which means the outlook is still favourable.
However, coupled with the ongoing Northern Ireland Protocol issues with the EU we need to be mindful of some potential risk premium build up in Sterling which could translate into some short-term downside.
We would consider any sizeable corrections as opportunities to engage from better levels, especially against the EUR and the JPY.
EUR:
Still the biggest net-long position among the majors. Issues surrounding the fundamental outlook for the single currency still has complications, but with the vaccination roll out gathering momentum we have seen sentiment data picking up on the prospects of a reopening. The EUR has remained well supported over the past few weeks as the USD continued to lose favour and as markets look towards a fast economic rebound once the vaccination efforts allow the EU to lift restrictions.
If the EU can reach their vaccination targets, we could well see a faster recovery playing out in the EU. However, when we compare that potential recovery in terms of growth or inflation differentials or compare the policy response between the US and UK or compare policy normalization expectations it seems the EU is still lagging behind that of the US and the UK.
For that reason, we are staying patient with our med-term bearish view on the EUR for now and will wait for more information and data before we change our mind.
*This report reflects the COT data updated until 8 June 2021.
The AUD suffered the biggest outflow amongst the major with the CFTC data updated until Tuesday the 8th of June, which should arguably not be surprising given the prior outperformance in the currency before that happened.
This week the focus for the AUD turns to the incoming Employment report where labour data has been touted by many as the most important consideration for the RBA regarding potential policy changes or updates. For the NZD we have Q1 GDP data coming up which should provide us with an interesting outcome on our AUDNZD short trade.
The recent underperformance of the NZD has been quite surprising, and our view that the fundamental outlook points to further strength has been shared by numerous investment banks. We’ll see whether GDP data is what the NZD needs to move back in line with its underlying bias.
For the CAD, positioning is something that we are focused on, especially with the CAD trading “elevated” against numerous currencies, we need to be mindful of some possible mean reversion.
JPY, CHF & USD:
Our fundamental outlook for the US Dollar has shifted from Weak Bearish to Neutral. The assessment of risk to the currency is more balanced in our view as we head closer and closer towards potential tapering by the Fed. Apart from that, real yields are expected to remain a key driver in the short-term and something we will use for potential short-term direction bias alongside incoming economic data points.
This week, the main event for the US Dollar will of course be the upcoming FOMC meeting, where the elephant(s) in the room will be the massive upside surprises in US CPI readings compared to the FOMC’s March projections, as well as what the bank will have to say about tapering discussions (those ones that Fed Powell said they haven’t been having but the April minutes showed they have)
For the JPY, the ongoing divergence between US10Y and the safe-haven currency will be a focus point of ours this week. As the Fed and quad witching is in the mix this week we need to keep safe-haven flows in mind this week as a potential supporting factor if equities see some jitters.
GBP:
Even though the bias for Sterling remains titled to the upside, as the third largest net-long position among the majors we do need to be mindful of the current short-term risks for the currency.
We received confirmation that the UK’s planned reopening on the 21st of June will be delayed by four weeks. This was already touted last week so the impact might be lesser this week, and also due to the fact that it won’t derail the economic recovery which means the outlook is still favourable.
However, coupled with the ongoing Northern Ireland Protocol issues with the EU we need to be mindful of some potential risk premium build up in Sterling which could translate into some short-term downside.
We would consider any sizeable corrections as opportunities to engage from better levels, especially against the EUR and the JPY.
EUR:
Still the biggest net-long position among the majors. Issues surrounding the fundamental outlook for the single currency still has complications, but with the vaccination roll out gathering momentum we have seen sentiment data picking up on the prospects of a reopening. The EUR has remained well supported over the past few weeks as the USD continued to lose favour and as markets look towards a fast economic rebound once the vaccination efforts allow the EU to lift restrictions.
If the EU can reach their vaccination targets, we could well see a faster recovery playing out in the EU. However, when we compare that potential recovery in terms of growth or inflation differentials or compare the policy response between the US and UK or compare policy normalization expectations it seems the EU is still lagging behind that of the US and the UK.
For that reason, we are staying patient with our med-term bearish view on the EUR for now and will wait for more information and data before we change our mind.
*This report reflects the COT data updated until 8 June 2021.
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