• The post-shutdown reaction in sentiment suggests that inves-tors shifted positioning on the basis of a renewed appetite for risk, as seen in the rise of both gross long and short positions in MXN and EUR, alongside a sharp adverse shift in positioning for JPY.
• The CAD net short position halved w/w to $0.5bn: With the shift completely driven by a decline in gross shorts, this suggests that investors reacted positively to the end of the US shutdown as they considered the implications for growth and monetary policy. For AUD, the net short position is at its narrowest levels since May, however shift continues to be largely based on a paring back in bearish positions rather than an outright view to strength.
• EUR continued to benefit in the post-shutdown period, with a $2.3bn rise in the net long position to $12.5bn. The rise in both long and short positions highlights the outright shift in risk appe-tite, a dynamic that was also observed for MXN.
• The passing of the shutdown provided investors the opportunity to reallocate back toward the USD away from other major reserve currencies. This adversely affected sentiment toward JPY, as evi-denced by the $1.6bn widening in the net short position that was completely driven by a paring back of longs that had only recently been built.
Read full report: FX Research
Scotiabank