Money managers sold dollars for a second week in a row according to the latest data from the CFTC covering the week ending December 11. Seven of the eight IMM currencies tracked in this report were bought with only the JPY continuing to be sold against the Greenback. The carry trade has returned with a vengeance as the two currencies which were bought the most were AUD and MXN.
The main driver for FX flows at the moment seems to be the ongoing weakness of the JPY ahead of yesterday’s Japanese election which as expected was won by the Liberal Democratic Party in a landslide which opens up for further initiatives to weaken the JPY. As the chart below shows the increase in net-short to a new record was primarily driven by long liquidation as the gross-long was cut by almost a quarter. As a consequence the short to long ratio has moved out to 6.8 which leaves the market exposed should the sentiment for whatever reason move back in favour of the JPY, something that is currently not seen.
Click here to read the full report: FX CFTC_121712
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