• This week’s data suggests three core themes: 1) the favoured position is long USD, with every currency held net short and with the net USD now at $41bn; 2) currency positions are still within their 52-week range – see bottom right hand chart on page 2; and 3) most positions, with the exception of EUR and JPY, are relatively small and accordingly could be built out further.
• Investors appear to be differentiating among the commodity currencies, punishing AUD for the fifth consecutive week to drive a cumulative $6.9bn swing since early September highs. For CAD, the neutral position masks a rise in risk that may lead to increased vulnerability, while for NZD the position has remained neutral for four weeks suggesting that investors are focused elsewhere.
• EUR sentiment is bearish, with a net short $23.2bn position that appears to be showing signs of stability since mid-September, suggesting that investors will require a fresh catalyst to drive a renewed build. Meanwhile, CHF vulnerability appears to be rising as investors have added to risk over the past two months with a rise in both longs and shorts.
• GBP sentiment is neutral, with a considerable reduction in risk since the referendum. For investors this suggests a lack of conviction as a result of the shifting fundamental outlook.
Read the full report: FX Strategy