Investors pared exposure to European currencies heading into key US & ECB events, reducing net long positions in EUR, GBP and CHF. Meanwhile, JPY, CAD and AUD continue to be held net short. Overall, the details are suggestive of a paring back in risk as gross long and short positions declined for nearly all of the majors with the exception of CAD. The USD position has retraced its decline from September (top right), when the Fed hesitated to taper.
The CAD net short position widens $0.2bn w/w to $5.6bn—Details are interesting given that CAD is alone among the curren-cies to see a modest build in gross long and short positions, sug-gesting appetite for CAD risk and with contrasting the shifts seen in other currencies. The CAD and AUD positions are at the lower end of their one year range (see bottom right p2).
The EUR net long position more than halved, falling $2.8bn to $2.5bn on profit-taking as the bulk of the shift was driven by a de-cline in gross longs. Similar dynamics were observed for both GBP and CHF as well, hinting at lower conviction among investors in terms of their expectations for continued gains.
The JPY net short position narrowed $0.7bn to $15.4bn, with details similar to other currencies given the paring back in risk. Overall, the narrowing observed over the past two weeks has been driven by short covering, hinting at downside risk for USDJPY (upside JPY) in the event that shorts are pared back further.
Read the full report: FX Research
Scotiabank