USD retreat ignores stocks pullback

Mondays selloffs in the US dolar are common, especially when stocks gain. But today's action sees USD mostly weak during a general pullback in indices. This may suggest that equities are undergoing harmless profit-taking.  The general picture makes sense, VIX is up after 7 consecutive weekly declines (longest losing streak since last summer), 10-yr yields found support at 1.55% as did USDJPY at 108.00.  The stabilisation in yields weighed on NASDAQ and later on rest of indices. GBP is again testing $1.40. Last week ended with an impressive reversal in cable but the new week began with an unimpressive drop in the cryptocurrency market. CFTC positioning showed a speculative market with little fresh conviction. All currencies have seen their longs reduced vs USD over the past 3 weeks, but EUR remains the highest net bullish positioning, while GBPUSD shows the sharpest rebound. 

If we rewind back to December, there was plenty to worry about regarding sterling. Brexit was still a mess, the virus was raging and the BOE had floated negative rates. Skip ahead and the UK has gotten the upper hand on covid, memories (nightmares?) of Brexit are fading and negative rates are off the table.

Yet at the lows last Monday, cable was trading exactly where it was on December 30. Now much of that is due to a broader US dollar rally but with Treasury yields fading, there was room for a bounce and that began to materialize last week with a double bottom at 1.3670.

On Friday, there was another positive signal after a stumble lower in Asia was picked up aggressively and cable finished at a 10-day high. The bullish outside reversal is an opening for further gains.

The big drama on the weekend was in crypto as bitcoin fell nearly $10,000 to $51,300 in a broad crypto wipeout. Many coins fell more than 20% in a liquidation-like move. There was some recovery early on Monday but the volatility will keep the crypto market off balance all week.

There was plenty of talk and rumours about regulatory crackdowns but no real news. A power outage in parts of China may have hit miners but it's a stretch to pin the drop on any one factor.

CFTC Commitments of Traders

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

EUR +67K vs +68K prior

GBP +26K vs +20K prior

JPY -58K vs -58K prior

CHF +1K vs +3K prior

CAD +2K vs +3K prior

AUD +4K vs +4K prior

NZD +3K vs +3K prior

There isn't much to report this week aside from GBP longs edging higher.