US Dollar, GBP/USD, AUD/USD, COT Report –Analysis
AUD & NZD Sentiment Deteriorates, USD Bulls Return – COT Report
In the latest reporting week, CFTC data highlighted renewed buying in the USD albeit marginally so. As I had noted in last week’s report, speculative demand for the greenback was to be expected following strong NFP data and recent hawkish Fed commentary. That said, as we head towards the Jackson Hole Symposium I continue to favour USD upside, particularly with global growth concerns providing a cautious backdrop, in which safe-haven currencies tend to outperform.
As global growth concerns are predominantly stemming from the weaker Chinese backdrop, sentiment in both the AUD and NZD have deteriorated, most notably in the leveraged fund community. Much of Australia remain in lockdown and while the RBA provided a bit of breathing room for the Aussie by refraining from delaying a taper, this has provided an opportunity for market participants to renew short positions in the currency. The Kiwi on the other hand is faced with a comparatively better domestic story, the worry, however, is how much tightening is priced in money markets (65bps of tightening priced in by year-end), which not only raises the bar for a hawkish surprise but also could see NZD harder hit on an unwind of tightening bets.
Broad support remains for the Pound with net longs rising 4% (adj. for OI) and given that the BoE has provided a path for how it will exit ultra-loose monetary policy, this optimistic sentiment will likely grow. This week will see a slew of tier 1 UK data releases, although, while the data will have little ramifications for the BoE’s outlook on monetary policy, secondary inflationary effects in wages may well raise the probability that the Bank will look to apply the monetary stimulus brakes.
Across the safe-haven currencies, it remains a tale of two stories, the Japanese Yen remains the most shorted currency on an OI basis, while market participants have the largest bull position in the Swiss Franc. Now while I am cautious on risk sentiment given the current backdrop, the preferred hedge against equity downside would be the JPY over CHF in light of current positioning.
Weekly FX Positioning
Source: CFTC, DailyFX (Covers up to August 10th, released August 13th)
The Analytical Abilities of the COT Report
US Dollar Positioning
Source: Refinitiv, DailyFX
AUD/USD Positioning
Source: Refinitiv, DailyFX
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