Positioning risk on EUR/USD eases

The latest IMM data cover the week from 29 June to 6 July.

During the week covered by the latest IMM positioning data, USD has weakened more than 2% in effective terms, with EUR/USD breaking well above 1.26 in summer-thin trading and with USD/JPY dropping below 87. The broad-based USD weakening has coincided with speculative investors trimming their net long USD positions, primarily by paring short EUR positions. While speculative market participants remain short EUR, positioning is now less extreme than previously and directional risk from a position squeeze arguably less one-sided.

Speculative investors have continued to add to their long JPY positions. With net longs approaching 30% of open interest, upside risks in USD/JPY are emanating from the significant JPY long positions.

The commodity currencies suffered during the time period covered by the IMM data as risk appetite was under pressure, causing speculative investors to scale back long positions in AUD and CAD. However, since then, market sentiment has improved and both AUD and CAD have received support from exceptionally strong employment reports. With money markets pricing in more future rate hikes from the RBA and the BoC, speculative investor interest in AUD and CAD looks bound to resume.

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

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