Strong investor belief in a sustained dollar rally

The latest IMM data cover the week from 16 to 23 February.

Long USD positions have been built further and speculative investors are now only short the dollar against the commodity currencies. Hence, confidence appears to remain in the dollar strengthening further.

The extension of long USD positions was mainly driven by speculative investors adding to short EUR positions. These have now reached 34 percent of open interest – a quite crowded level – indicating that the risk on EUR/USD from a position squeeze remains to the upside. Hence, if a bail-out plan for Greece is confirmed, a move higher in EUR/USD could be quite sharp if short EUR positions are unwound.

Long JPY positions have been unwound and total net positions are now broadly neutral. That is, even though USD/JPY spiked higher, following the surprise decision to hike the discount rate, investors are still reluctant to take on significant short JPY positions.

Short GBP positions were extended to reach 50 percent of open interest – approaching the historically crowded levels from last October – and have been quite profitable as GBP/USD has collapsed further on M/A flow talk, increased uncertainty about the outcome of the UK election, and a dovish Bank of England. While we, from a fundamental perspective, see risk as tilted to the downside for GBP in the short term, one should bear in mind that positioning remains a key risk in the other direction.

The IMM data

The IMM data is part of the Commitments of Traders (COT) reports published by the U.S. Commodity Futures Trading Commission (CFTC). The IMM data provides a breakdown of each Tuesday's open futures positions on the International Money Market (IMM) a division of the Chicago Mercantile Exchange. All of a trader's reported futures positions in a commodity are classified as commercial if the trader uses futures contracts in that particular commodity for hedging as defined in CFTC Regulation 1.3(z), 17 CFR 1.3(z). A trader may be classified as a commercial trader in some commodities and as a noncommercial trader in other commodities

Danske Bank
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