• The market is shifting to an increasingly bullish view of the USD; with the net USD position rising to $26bn (the largest in over a year) driven by building bearish EUR, JPY, CHF positions and narrowing GBP, MXN, AUD, CAD and NZD longs. The shift is still transitioning, warning of further near-term USD upside risk.
• Bearish EUR sentiment is rising and weighing heavily on the near -term outlook for the currency. The net short position is now the largest since mid-2012, standing at -$22bn. It is extended, however the large week-over-week change suggest that traders are still in the midst of building their positions, leaving it less vulnerable to a sudden correction. We see this week’s data as a warning of further near-term downside risk.
• CAD sentiment remains bullish despite a continued decline in spot, with investors holding a net long $2.0bn position since July 22. However, the stability in sentiment obscures a paring back of risk that has been observed given the near equal contraction in both long and short positions. Risk was pared back for both AUD and NZD as well, likely reflecting geopolitics and building risk aversion.
• Bullish GBP sentiment has softened for the fifth consecutive week, mirroring the recent decline in spot. Sentiment remains bullish, but the shift warns of a fading commitment to longs.
Read the full report: FX Strategy