US Greenback Shorts Broken, GBP Bulls Eye EUR/GBP Pullback

US Greenback, GBP/USD, USD/JPY, COT Report –Analysis

• US Greenback Shorts Caught Out by Fed
• JPY Quick Squeeze Stems From Unwind of Reflation Trades
• GBP Bulls Look to Fade EUR/GBP

US Greenback Shorts Broken, GBP Bulls Eye EUR/GBP Pullback – COT Report

In response to the newest CFTC knowledge, speculators had elevated their web brief positioning within the US Greenback heading into the Federal Reserve assembly as bearish bets grew by $1.16bln. In flip, with market positioning caught out by the shock hawkish FOMC dot plots, notably in leveraged funds (quick cash accounts), this partially explains the sizeable appreciation within the USD. Due to this fact, because the Federal Reserve begins speaking about normalising coverage, the forex might be anticipated to carry out nicely in opposition to low yielding currencies (EUR, CHF) and people the place central banks have but to sign normalisation.

Elsewhere, sentiment within the Japanese Yen deteriorated additional as web shorts rose $1.1bln and thus the Yen remained the most important bearish wager (on an open curiosity adjusted foundation) within the G10 complicated. That stated, with the Fed showing to place the brakes on the reflation commerce, standard cross-JPY longs had been unwound and subsequently contributing to the Japanese Yen brief squeeze throughout spot costs (prone to be mirrored in subsequent week’s knowledge). Nonetheless, as I’ve stated beforehand, the outlook for USD/JPY shall be primarily decided by the path of US yields.

The largest positioning mover had been the Swiss Franc as web shorts had been lower by $1.2bln, maybe reflecting the current slide in EUR/CHF. Nonetheless, with prospects for the worldwide financial system remaining sturdy and with the FOMC “speaking about speaking about” tapering, CHF could battle from right here.

Web longs within the Pound rose by a further $394mln and whereas GBP had been caught up within the US Greenback brief squeeze. The outlook for the Pound is encouraging with markets more and more pricing in a extra hawkish Financial institution of England. Current weeks have seen dovish members (Vlieghe) speak up situations the place a fee hike could also be acceptable subsequent 12 months, which in flip is prone to see GBP retain assist as we head into the BoE assembly. This view is healthier expressed via fading EUR/GBP recoveries from 0.8620-40.

Weekly FX Positioning

Supply: CFTC, DailyFX (Covers as much as June 15th, launched June 21st)

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US Greenback Positioning

Supply: Refinitiv, DailyFX

USD/JPY Positioning

GBP/USD Positioning

Supply: Refinitiv, DailyFX

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