• The USD is still held net long but week-over-week changes suggest that sentiment is rapidly turning to a more bearish USD stance. EUR is now held net long and while the net positions in JPY, GBP and CAD are all short, the week-over-week changes suggest a positive shift. We interpret this week’s data as highlighting a shift in sentiment; where markets are still bullish the USD but conviction is fading, this is a warning for near-term traders who are long USD. We have made no change to our medium-term outlook for a strong USD.
• CAD net short $-1.0bn: there were only minor changes in the CAD position this week; with traders holding minimal CAD risk and lacking conviction. AUD net short $-6.9bn: sentiment towards AUD continues to be notably bearish as the net short position widened to a fresh record.
• EUR net long $1.0bn: A $2.4bn w/w swing pushed EUR into net long territory, typically a bullish sign, as shorts pared back their positions alongside a build in longs. EUR has been held net long twice in 2013, for relatively brief periods of time, both of which were followed by rapid declines in spot.
• JPY net short $10.3bn: Sentiment for JPY remains the most bearish among the majors despite a considerable narrowing since the record levels from late May. However, this improvement is completely driven by a decline in shorts rather than a build in longs.
Read the full report: FX Strategy
Scotiabank