EUR bullish bets surge, USD longs reduced - Rabobank

According to IMM Net Speculators’ Positioning as at July 18, 2017, market speculators increased their bullish bets on the euro to the highest level so far this year as net long EUR positions rose to 91.32k in the week ending July 18, up from 83.79k previously, notes the analysis team at Rabobank.

Key Quotes

“The euro remains supported by fading political risks in the Eurozone and positive economic outlook as reflected in IMF’s upside revision to Eurozone growth to 1.9% in 2017 and to 1.7% next year. Growing market expectations that the ECB will start to reduce its unprecedented monetary policy stimulus is another major factor providing the euro with a bullish momentum against its G10 peers. Last week EUR/USD surged to 1.1683 high – the highest level since August 2015 after ECB President Mario Draghi refrained from pushing against a strong euro. While Draghi acknowledged that the euro’s recent appreciation has received “some attention” at the Governing Council’s meeting, he didn’t try hard to talk down the euro, which extended its impressive ytd gains to almost 10% versus the US dollar.”

“Meanwhile, the ongoing political drama in Washington continues to weigh on the USD with net long speculative positions falling further to just 2k from already low 2.34k previously. After US special counsel Robert Mueller reportedly widened his investigation into Russia’s interference in the US presidential election to include Trump’s businesses, the DXY index plunged to 93.854 last week – the lowest level since June 2016 and well below the pre-US presidential election low of 95.885. Market expectations that President Donald Trump will be able to deliver his pre-election fiscal pledges hit a new low. With the Trump administration unlikely to make significant progress on the fiscal front, we remain of the view that the Fed will refrain from raising interest rates further in the second half of the year.”

“Even sterling, which faces prolonged uncertainty caused by Brexit, is performing well against broadly weaker Greenback. GBP net short positions fell to yet another ytd low of 16.47k from 24.14k previously.”

“Following the BoC decision to raise the policy rate by 25bps to 0.75% earlier this month, speculators are net long CAD for the first time since March. Speculators are also optimistic about the prospects for the AUD with net long positions continue to rise.”

“The Japanese yen remains the only G10 currency with bearish bets significantly exceeding bullish wagers as net short JPY positions rose further to 126.92k.”