Bullish bets on the US dollar increased, EUR shorts surge - Rabobank

Analysts at Rabobank lists down the IMM net speculators’ positioning as at 28 February, 2017.

Key Quotes

“After falling to the lowest level since mid-October, USD longs were virtually unchanged as at February 28. That said, bullish bets on the US dollar may have increased last week in line with a sharp rise in market expectations that the Fed will further reduce its monetary policy stimulus. In just a few days the implied probability of a hike on March 15rose from around 40% to more than 90% on the back of hawkish comments from the FOMC participants. When speaking on Friday Fed Chair Janet Yellen admitted that a hike in March is on the table: “A further adjustment of the federal funds rate would likely be appropriate” if employment and inflation continue to evolve in line with the Fed’s expectations.”

“EUR shorts increased further to the highest level in more than a month with focus mainly on French politics. Any negative news regarding the anti-euro candidate Marine Le Pen tend to provide the euro with support as reflected in a rebound in EUR/USD from last week’s low when an opinion poll revealed that Le Pen may not win the first round of the French presidential elections. That said, EUR/USD fell again on Monday when Alain Juppe – who was defeated in the Republic party primary by now discredited Fillon – declared that he has no intentions to run for the presidency.”

“Bearish bets against the pound increased for the fourth consecutive week. Such a bearish sentiment towards sterling is likely to prevail if market participants witness more warnings signals that the UK economy is losing momentum. Last week GBP/USD fell to the lowest level since the middle of January after the pace of expansion in the UK’s services sector unexpectedly slowed down to 53.3 in February from 54.5 in January.”

“Yen shorts edged lower for ninth consecutive weeks amid an ongoing unwinding of post US election carry trade bets. At the beginning of the second week of trading in March, USD/JPY is front heavy due to a spike in geopolitical risk caused by North Korea’s firing 4 ballistic missiles.”

“Further fall in CHF shorts (for a fourth consecutive week) implies that the markets could be concerned about the French election. CAD long positions continue to rise amid market relief that the Trump administration intends to only tweak ties with Canada, although no specific details are available.”