Non-commercial investors turn short USD

The latest IMM data covers the week from 6 July to 13 July.

Following the USD peak in early June (since which the USD has corrected 5% lower), speculative investors have gradually reduced their long positions and have now once again turned net short USD. This shift partly reflects an unwinding of short EUR positions, but also the build-up in long AUD, CAD, CHF and JPY positions.

Positioning risk has become more two-sided in EUR/USD. Since net short EUR positions peaked at 40% of open interest in early May (a 3 sigma event), threequarters of these have been unwound. This implies that the upside risk on EUR/USD, all other things equal, has been reduced. The latest move in EUR/USD towards 1.30 after the IMM data was collected is likely to have seen EUR shorts further reduced.

The JPY has been on a bullish trend since May (appreciating close to 10% in effective terms) coinciding with a 180-degree turnaround in speculative positioning. After being net short JPY to the tune of 45% of open interest in early May, non-commercial investors are now net long with 35% of open interest. As the JPY rises, however, so does the probability of intervention by the Bank of Japan, which only amplifies the downside risk on JPY that already exists from positioning.

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

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