Market still long JPY post BoJ intervention

The latest IMM data cover the week from 25 October to 1 November.

Positioning leaves less room for accelerated JPY strength: Net long JPY positions were reduced by 43 percent following last Monday’s BoJ intervention, but remain well above the historical average. This reduces the potential of an accelerated move back lower in USD/JPY, but we still see risks skewed in that direction. Relative fundamentals remain JPY-positive until the BoJ eases monetary policy more significantly – unsterilized currency intervention is a step in that direction, but most likely not enough.

Investors still underweight risk: Long USD positions have been scaled back recently, but remain at elevated levels. Together with modest long positions in stocks this suggests that the average investor is likely to remain underweight risk assets – even after October’s strong performance. If this is an accurate description of overall market positioning, it does leave room for a significant risk rebound should global macro data improve further and/or eurozone debt risks decline.

Long CAD and MXN the most attractive risk-on bet: Of the commodity currencies covered by the IMM data, CAD and MXN continue to see the most stretched positioning. In other words, the potential for re-positioning remains largest in MXN and CAD should risk sentiment improve. We still see significant headwinds however, from both the global cyclical outlook and the continued pressure on Italy. The mirror-observation is perhaps therefore more interesting in the current markets, which would be that NZD remains the most vulnerable currency from a further unwind of long positions

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

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