• Sentiment continues to diverge with building bearish EUR andJPY positions and steadily bullish AUD, NZD, MXN and GBP holdings. Our forecasts line up well with current positioning, with the exception of CAD, where a stubborn ‐$2bn short position has yetto be covered.
• The market holds a net long $6.6bn USD position; but it is mainlymade up of short EUR and JPY holdings and accordingly is not abroad based strong USD play but instead made up of targeted positions.
• The divergence between the net long AUD position at +$2bn andthe net short CAD position at ‐$2bn is notable; particularly sinceboth central banks hold neutral stances and have some what similar drivers—this could in part be a yield play but is also likely tobegin to narrow.
• The divergence between the net short EUR position at ‐$5.6bnand the net long GBP positition at $3.7bn is also noteworthy—see top right hand chart—and highlights diverging fundamental backdrops. We expect EURGBP to depreciate into year‐end.
• CHF sentiment is vaguely bearish and is likely to follow EUR’s andJPY’s more bearish positioning.
Read the full report: FX Research
Scotiabank