COT CURRENCY REPORTAUD, NZD & CAD:
The biggest mover among the three high beta majors was the CAD which showed a fairly big increase in net long positioning of +10K. What is even more interesting about this is that it occurred before the BOC meeting on Wednesday, which means this Friday’s data should show yet another big increase in positioning after the hawkish tilt from the BOC.
In terms of the AUD, positioning is back in negative territory after a -5K position change, fairly large and most likely due to the exacerbated downside we saw the AUD two weeks ago with the risk off flush in risk assets which hit the AUD much harder than it’s high beta counterparts.
This week will be fairly light on the data front for the CAD and NZD with CPI data in focus for the AUD. We would expect the CAD’s upward momentum to continue after the BOC’s meeting but as always external factors such as risk sentiment and oil will be important considerations.
JPY, CHF & USD:
US 10-year bond yields remains one of the key drivers for the USDJPY and a key asset to watch for the next direction of the pair. With the overall global risk outlook as well as the med-term bias for US10Y still tilted higher, we still expect USDJPY to drift higher and would keep a close eye on the price action for additional upside opportunities.
As for the Dollar, not much has changed. The med-term bias remains titled to the downside, and the move lower in US10Y has certainly also helped to push the greenback lower. This week we do have the upcoming FOMC meeting as well as Q1 GDP.
Even though markets are not expecting a lot from the FOMC there are a few caveats that could create some volatility in the Dollar.
GBP:
Sterling finally started to show more signs of life this past week, but once again did not manage to take advantage of that strength versus the EUR. The market’s continued expectations for a recovery narrative in the EU has continued to keep the EUR supported, alongside a continued push lower in the USD.
The fundamental outlook for the GBP remains unchanged, and with some of the upside positioning being unwound, we would expect the GBP to resume its med-term upside momentum. However, it does seem like markets might be waiting for a catalyst in the short-term to do so.
EUR:
Still the biggest net-long position among the majors. There are still issues surrounding the fundamental outlook for the single currency, but despite that the EUR has remained very well supported over the past few sessions as the Dollar has continued to lose favour.
The one positive though, and one of which a lot of participants are banking on right now, is that the vaccination roll out is gaining some positive momentum, and if the EU can reach some of the targets it has set itself then we could see a faster recovery in the EU.
However, when we compare that potential recovery in terms of growth or inflation differentials, or compared that from a monetary policy normalization point of view, it will still be far behind that of the US and the UK, which is why we are staying patient with our view on the EUR for now, waiting for more information before we change our mind.
*This report reflects the COT data updated until 20 April 2021.
