Cyclical currencies? No, thanks. USD? Yes, please!
The latest IMM data covers the week from 19 February to 26 February.
Most cyclical currencies such as the euro and commodities were shredded last week. Investors went net short EUR again with net positioning back at levels seen around new year prior to the January rebound. For now, EUR/USD will be driven by speculation on ECB action ahead of the rate meeting on Thursday: the single currency itself should be less of an issue for the ECB given the latest weakening and we look for limited euro downside from here. However, we acknowledge that with political uncertainty elevated on either side of the Atlantic (Italian election, US budget talks) and ECB rate cut talk lingering, euro tailwinds have yet to gather and we cannot rule out investors wanting to adopt more euro shorts in the near term.
JPY positioning became slightly less stretched in a week that saw the Japanese government nominate compromise candidate Kuroda as new BoJ governor. While a shift in a much more dovish direction on the BoJ board has been under way for a while, a new governor who has forcefully argued that the BoJ has been too passive previously should allow investors to put on more shorts in the near term.
More GBP shorts were put on in a week that saw BoE minutes revive discussions of an increase in asset purchases. Sterling looks increasingly like the big loser in the FX market this year and GBP short positioning has yet to reach extreme levels.
Both AUD and CAD were discarded by speculators last week as risk appetite soured following the Italian election. However, watch out for Reserve Bank of Australia this week: the bank has recently changed its rhetoric somewhat, becoming more reluctant to ease as aggressively going forward. Also, Bank of Canada could remind investors this week that it remains one of the only majors looking to hike; CAD upside seen from here
Danske Bank
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