USD net short positions fell modestly, bullish EUR bets trimmed - Rabobank

According to the IMM net speculators’ positioning as at October 24, 2017, market speculators trimmed their bullish bets on the euro ahead of last week’s ECB interest rate decision, notes the analysis team at Rabobank.

Key Quotes

“Adopting a more cautious approach towards the euro paid off after President Draghi revealed that the pace of QE tapering will be gradual. The Governing Council opted to extend its asset purchase programme until at least September 2018, albeit at a reduced pace of EUR 30bn per month from January rather than EUR 60bn. Moreover, a “large majority” of the Council members preferred to keep the programme open ended. Essentially, the message from the ECB was relatively dovish and weighed on EUR/USD, which broke below the key trendline support at 1.1673. Further retracement towards the 1.1489/80 level is now a favourable short-term scenario looking from the perspective of technical analysis. An even more bearish target of 1.125~ can be obtained.”

“Speculators’ net short USD positions fell modestly, but not sufficiently to indicate a major shift in market sentiment towards the greenback. That said, the US dollar had the best week so far this year appreciating broadly against its G10 peers and EM currencies last week. The sharp rise in the DXY Index to the highest level since July was caused by an encouraging set of US data and growing optimism that the Trump administration will make progress on tax reforms. Another major driving factor is who will lead the Fed. Bloomberg reported that President Trump is leaning toward appointing Federal Reserve Governor Jerome Powell. However, John Taylor cannot be excluded given that Trump tends to change his mind often.”

“After rising sharply at the beginning of October, net GBP long positions have been fully unwounded over the past few weeks, falling back into negative territory during the week ending October 24. For the first time in a decade the BoE is expected to raise interest rates on Thursday, but it should be priced in already. The market will be looking for any signals from Governor Carney whether more hikes will follow. The BoE has limited room for manoeuvre to raise rates further as prevailing Brexit uncertainty seems to be weighing on consumer sentiment and business confidence. Rabobank’s BoE watcher Jane Foley anticipates that it will be a dovish hike, which means that potential for the pound to benefit from a policy move is likely to be limited.”

“Following the early general elections net JPY short positions increased further amid expectations that Prime Minister Abe will reinforce his “Abenomics” programme to boost economic activity. Abe recently demanded Japanese companies to increase wages by 3%.”