The USD position increased as traders added to already long positions, driving the net long to $43bn. This data implies that the market is increasingly bearish EUR, CHF, CAD and AUD and neutral towards MXN and GBP. We caution that this data is somewhat stale, since it only covers the period up to Tuesday, the day before the US 10-year yield dropped to 1.86%.
• Traders hold their largest net short against EUR and added to it this week, driving it to $25bn; however market participants are far more cautious on GBP holding a relatively flat net short of just – $0.3bn.
• Investors are now bearish all three commodity currencies, with NZD the latecomer following the turn in AUD and CAD toward the end of September. AUD sentiment is the most bearish among the three, with a $2.6bn short position resulting from six consecutive weeks of deterioration. The $1.4bn net short CAD position is relatively more modest, having deteriorated for five consecutive weeks.
• JPY sentiment is bearish with a large $11.8bn net short position driven by fundamentals. However, JPY remains vulnerable to short covering in periods of risk aversion, a development that has provided for a $2.0bn narrowing in the net short over the past two weeks.
Read the full report: FX Strategy