Euro Thoughts, CFTC Positioning

Better German CPI and French GDP Monday may pave the way for a euro reprieve. The Swiss franc was the top performer in holiday-thinned trading Monday while the yen lagged. The week ramps up in a big way from here starting Japanese jobs, household spending and industrial production.  

The euro is in the midst of testing the 200-day moving average and the uptrend since December. On Monday, it got some help from Germany and France. German HICP rose 0.4% m/m in May compared to 0.3% expected. That took the country out of deflation in year-over-year terms. France reported Q1 GDP at 0.6% q/q compared to the 0.5% consensus.  Better investment was behind the beat.

Overall, they're two small improvements but the ECB has placed itself firmly in a wait-and-see mode. The progress in the right direction will be welcomed and is likely to be cheered in Draghi's press conference after the ECB decision on Thursday.

The five-cent drop in the euro this month may partly reverse if nearby support holds. The ebb and flow of economic data will be critical beginning with French CPI Tuesday but also with the wave of data due from the US this week.

The yen started the week softly after the official announcement of the consumption tax delay. It was well-telegraphed so that wasn't likely to have been the reason but it does push Japan further towards the fiscal abyss and closer to monetization.

There have been some good recent signs in economic data and Abe will hope that continues at 2330 GMT with Japanese household spending and industrial production.  Japanese data has been all over the place lately, including strong GDP, trade and machine orders numbers. Jobs data is due as well but it's not a market mover in Japan.

At 0130 GMT  the focus shifts to Australian building approvals The Aussie housing machine is slowing with approvals expected down 6.7% y/y. It's not a big market mover but AUD traders are unsure when the RBA will cut and this could add a small bias.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -38K vs -23K prior

JPY +22K vs +59K prior

GBP -33K vs -38K prior

CHF +4K vs +4K prior

AUD +0.1K vs +25K prior

CAD +20K vs +23K prior

NZD +4.6K vs +7K prior

What stands out is how quickly positioning has shifted in favor of the US dollar. That makes sense given the news flow but the magnitude of the market move doesn't match the aggressiveness of speculative buying. That's a recipe for disappointment.

We've been carefully and cautiously expecting US dollar strength since the FOMC Minutes and, evidently, the speculative market has been as well. Yellen put more gasoline on the fire with a hawkish speech Friday and yet the dollar hasn't really gathered momentum. We remain patient but ignoring the dollar's tepid reaction for too long would be unwise.