JPY longs remain in place despite intervention risks

The latest IMM data covers the week from 17 to 24 August.

Still modest positioning risk in EUR/USD: With risky assets under pressure from weakening US and Asian economic data, non-commercial investors have added to short EUR positions. However, at 9% of open interest, short positioning is still far from the crowded levels seen during the spring Euroland debt 'crisis'. Hence, positioning risks are probably still limited in EUR/USD, as also indicated by the fact that the 1M risk reversal (a measure of how the option market prices downside EUR/USD risks compared with upside risks) is currently trading at a modest -1.70 compared with its June -3.14 peak.

Non-commercial investors reduce long CAD exposure: The Canadian dollar has been under pressure from not only reduced risk appetite, but also weaker-thanexpected economic data. The weaker growth outlook has led the market to price out expected rate hikes in Canada - from pricing more than 100bp on the 12M horizon in late July to just 41bp - and sent USD/CAD back to recent highs above 1.05. Unwinding of speculative positioning has probably added to the upside pressure in USD/CAD as net long CAD positions have been reduced from 31% to 17% of open interest.

JPY longs remain in place despite intervention risks: Today's policy response from the Bank of Japan (scaling up QE) did not come as a surprise to the market and yet non-commercial investors had kept long JPY positions at a high 36% of open interest going into last week. Even as JPY longs are likely to have been reduced following Friday's price action, and today's policy announcement, a potential unwinding of long JPY positions could still help the BoJ reduce downside pressures on USD/JPY should further policy action be taken

Danske Bank
http://www.danskebank.com/danskeresearch

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