Recent reversals in USD/CAD and GBP/USD confirmed by positioning data
SEB Risk appetite index (RAI)
Risk appetite is falling. RAI is working its way through its support area in a continuation pattern of the previous sharp fall.
Summary of the speculative accounts in the Commitment of Traders report for the period 25 April – 1 May:
Most extreme positioning: Net long CAD & GBP Largest positioning change: Increase in net long CAD
Speculators are reducing exposure in the face of uncertainty which is indicated by a generally rapid falling speculative share of open interest.
The net aggregate USD position was severely decreased as all currencies (except NZD) saw increasing net long/decreasing net short positions versus the dollar. In three weeks the USD position has been going from net long 116,292 contracts to long only 32,478. With the risk-off environment taking hold we expect this to start correct and thus we ought to see an increase in the aggregated net USD position (and stronger USD).
The largest change was an almost doubling of the already excessively net long CAD – which is a classic reversal signal. As expected following such a signal, there has been a quick move higher in USD/CAD the last five days (i.e. just after the reporting period). The excessively net long position is thus likely being scaled back – which we expect will be revealed in the next report.
GBP also continued to see an increase in the net long position taking it to the second largest level in 52 weeks. Just as for CAD we have after the reporting period seen rapid downside action in Cable –as should be expected whenever sentiment changes direction and an excessively long position is started to be scaled back.
The net short JPY position continued to decrease as did the net long NZD position. Indicating positive sentiment for the JPY and negative for NZD – just as the risk-off environment suggests. AUD on the other hand saw a slight increase to its net long position but price action has, as for CAD and GBP, since then been on the downside. Thus both price action and the risk environment point towards scale back of long AUD contracts in the next report.
The EUR net short position was slightly decreased in a defensive manner as both short and long contracts were reduced.
FX-O-meter indicators:
The Trend Trade Trigger model suggests staying short USD/JPY (for details see page 5 & 23).
The range trades previously discussed have seen mixed results. NZD/USD last week broke below the range seen since March 5 while USD/CAD is back in the range 3 month range after a short break on the downside.
EUR/GBP is for the third consecutive week both the strongest (down) trending and mostly stretched currency pair.
Click here to read the full report: Speculative Position 05.07.12
SEB tech team