Sentiment shifts this week largely reflect the impact of investors’reactions to recent central bank & policy-related developmentsgiven that currencies had remained relatively quiet headinginto Tuesday’s position date. As such, the key events for the largemoves in CAD, EUR and JPY were—respectively—the BoC, ECB,and payrolls data impacting the outlook for relative monetary policybetween the Fed and BoJ. The aggregate long USD position continuesto fall, and would be short $2.4bn excluding JPY.
For CAD, the $0.8bn narrowing in the net short position to$4.7bn was likely driven by the Bank of Canada’s unchanged tone,providing for the first significant increase in gross longs in sixweeks, alongside a relatively large narrowing in gross shorts (seebottom right p1). For AUD, the position was left unchanged as riskwas pared back from both the long and short side.
The $2.3bn rise in the net long EUR position to $6.3bn—a newmulti-month high driven by both increased bullishness and shortcovering—followed the ECB meeting in which Draghi pushed backon expectations for policy accommodation. This may have sincemoderated since Draghi’s speech on Thursday.
Finally, for JPY the renewed push toward bearish positioninglikely reflects the impact of last Friday’s US employment on relativepolicy expectations. Pressure is building from the short side(see middle right p2), however this is vulnerable to broader risk.
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Scotiabank