Strong investor belief in a sustained dollar rally

The latest IMM data covers the week from 23 February to 2 March.

Following recent stabilisation in EUR/USD, speculative investors have trimmed short EUR positions marginally. However, at above 30% of open interest, EUR shorts remain an upside risk on EUR/USD.

Also in effective terms the dollar has lost momentum, as witnessed by the correction lower in the DXY index from its mid-February 81.342 high. As a result, speculative long USD positions have been trimmed to USD5.4bn.

The IMM report also reveals that speculative investors re-entered long JPY positions on a large scale in the week to 2 March – taking net longs to 24% of open interest. This indicates that the strong move lower in USD/JPY during late February – triggered by a correction lower in US interest rates – was at least partly driven by speculative flows. However, following strong US data, and dovish signals from the Bank of Japan, USD/JPY has corrected sharply higher from its 88.14 low, which could indicate the JPY longs have been unwound since the collection of IMM data.

The intensified pressure on GBP has seen short positions being extended from already crowded levels. Net short GBP positions have now reached 52% of open interest, leaving GBP/USD in particular at risk from a potential position squeeze, which could see the pair move sharply higher. However, while risks are skewed to upside from positioning, one should as always remember that even very crowded positioning can prove quite long-lived.

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

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