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Daily Forex Commentary

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Speculators increased their USD−positions

Mon, Aug 18 2008, 06:33 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Speculators once again increased their net long positions in the dollar according to CFTC Commitments of Traders. It is in line with what we have seen in the FX market the last 1½ week and I would not surprise us if the speculators are actually longer in the dollar than what the numbers indicate as they are collected Tuesday of last week. Speculators have sold almost 10.000 additional EURUSD-contracts compared to the week before (-19,417 this week vs. - 9,447 last week). It is not just against the euro the speculators have bought the dollar.
Actually, it is only versus the Swiss franc the speculators have reduced their dollar-holdings and only by a negligible number of contracts.
This is very much in accordance with the broad dollar-strengthening we have seen over the last 1½ week and it only supports the thesis that the dollar has reversed its multi-year downtrend.

On Friday the dollar extended its gains as most of the US data were slightly better than expected and commodities softened. EURUSD has been testing the psychologically important resistance level around 146.50 (USDDKK 509) this morning. Currently, EURUSD seems to be trading with a bullish sentiment as commodities are regaining strength. We are considering buying Norwegian kroner, but because the euro seems to be rebounding this morning, we prefer to keep the trade on the shelves a bit longer. We expect EURNOK to increase slightly with an overall rebound in the euro (or at least stay around the current level) and adjust our current range.

Emerging Markets

By the Emerging Markets Team

Friday was another marginally positive day for EM, capping what was a very good week for the high-yielding currencies. Our EM carry basket (long ZAR, TRY and ISK vs EUR) yielded more than 1% for the week - which brings the totalt return on the basket to more than 6% over the last month (admittedly, we are still down some 12% for the year, mainly due to the steep drop in the ISK). The main theme playing out in EM currently was once again underlined on Friday: The central bank of Colombia kept rates unchanged, while the Mexican equivalent did hike by 25bps but signalled in no uncertain terms that "this was it" for the hiking cycle.
Both central banks signalled that the drop in commodities and the worsening growth outlook lies behind the end to the tightening and they thus follow the leads of the central banks of e.g. Turkey, the Czechs and South Africa. This leaves EM currencies without an important support - hawkish central banks - but we still think that the currencies with more solid fundamentals and sufficient carry can continue to perform. We thus still like the TRY (which offers the best carry around) - and our short EUR/TRY position is now some 4% in the money! We are, however, turning increasingly negative on the Eastern European currencies, which are most vulnerable to a Euro Area slowdown. Looking ahead to today, the calendar offers nothing much of interest - and it doesn't look much more interesting when looking ahead to the rest of the week. We could be in for a time of consolidation.

Today’s Key Events

• 09:15 Retail Sales, CHF

• 11:00 Trade Balance, EUR

• 19:00 NAHB Housing Market Index, USD

• 03:30 Minutes from RBA monetary policy meeting, AUD

• Download Full Daily Forex Commentary

Published on  Mon, Aug 18 2008, 06:46 GMT