Some Thoughts on Current FX Positioning

Once again, we thought it would be helpful to take a look at the CFTC Commitment of Traders report. Here, we focus on non-commercial positions up to the week ended August 11. While this data represents a small slice of the speculative community, it does provide a window into overall market positioning.

SUMMARY
Bearish dollar bets continue to mount. Given the Fed’s aggressive easing measures taken since March, the market quickly reversed its previous bullish dollar bets build up in 2018 and 2019 in favor of bearish bets in 2020. Those bets have increased steadily at the US economic outlook has gotten cloudier. Of note, euro and Swiss franc positioning have gotten further stretched from a month ago, suggesting further gains may be difficult near-term. On the other hand, net long positioning in the dollar bloc currencies and sterling have not kept pace and are actually in net short territory. In between is the yen, where the market is net long but not overly so.

AMERICAS

CAD: Net Loonie shorts of nearly -30k contracts remain below the mid-May peak near -35k. The market was net long from mid-2019 to early March 2020, peaking at 54k in early November 2019. The market moved to being net short by mid-March and this movement was driven largely by a drop in gross long positions. Current CAD positioning does not seem stretched and so further near-term gains appear likely.

EUROPE/MIDDLE EAST/AFRICA

EUR: Net euro longs of 200k contracts is the highest ever. Net shorts peaked at -114k in late February and the market quickly moved to being net long by mid-March. This movement was initially driven largely by a drop in gross short positions, but gross longs have increased significantly in the past few weeks. Current EUR positioning seems stretched and so further near-term gains may be difficult.


GBP: Net sterling shorts of -2.8k contracts is the lowest since mid-April. The market was net short from mid-2018 until late 2019, when rising Brexit optimism shifted positioning to net long. Net longs peaked at 35k in early March and the market moved to being net short by mid-April as that Brexit optimism wore off. This movement was initially driven largely by a rise in gross short positions, and was later joined by a drop in gross longs. Current GBP positioning does not seem stretched and so further near-term gains appear likely.

CHF: Net Swissie longs of 17k contracts is the highest since May 2011. The market was largely net short from 2017-2019 before becoming net long this January. This movement was initially driven largely by a fall in gross short positions, but gross longs have risen significantly in recent weeks. Current CHF positioning is getting a bit stretched by historical standards and so further near-term gains may be difficult.

ASIA

JPY: Net yen longs of 27k contracts are just below the peak of 35k in late May. The market was largely net short since 2018, except for a brief period in Q3 2019. Net shorts troughed at -56k in late February and the market quickly moved to being net long by early April. This movement was driven largely by a drop in gross short positions. Current JPY positioning does not seem stretched and so further near-term gains appear likely.

AUD: Net Aussie shorts of -3.5k contracts remains near the mid-July low, which was the lowest since April 2018. The market was net short for most of 2018 and 2019 before becoming nearly flat last month. This movement was initially driven largely by a drop in gross short positions, but gross longs have started to rise in recent weeks. The market has not been consistently net long since March 2018. Current AUD positioning does not seem stretched and so further gains appear likely.

NZD: Net Kiwi shorts of -179 contracts remains near the June lows, which in turn matched the January lows. The market was net short for much of 2018 and 2019 before becoming almost flat back in June. This movement was driven largely by a drop in gross short positions. Note the market went net long briefly in late January. Current NZD positioning does not seem stretched and so further gains appear likely.