COT CURRENCY REPORT
AUD, NZD & CAD:
No surprise for the CAD to see the biggest net long positioning change among the majors, moving into second place below the EUR. The fundamental outlook for the CAD remains intact after the BOC’s recent hawkish tilt.
However, it seems like the BOC has taken notice of the rapid CAD appreciation and have fired a warning shot last week and given the markets an indication that USDCAD is approaching levels that could impact export competitiveness. Even though this doesn’t change the bullish outlook, it does pose a risk in the med-term.
For the AUD, the focus in the week ahead will turn to jobs data but also the Iron Ore prices. After a stellar run to the upside, it seems that China has finally stepped in to try and cool down the meteoric rise by banning steelmakers in Tangshan City (14% of China’s steel production) from fabricating or spreading price-hike information.
The move worked as Iron Ore prices took a tumble, but it’s worth noting that both Iron Ore and Copper saw some profit taking and overdue mean reversion earlier last week as well. With strong trends like these, seeing some pullback is to be expected, and as such they will be sensitive to potential bigger price reactions on news like this.
For now, the med-term bias for the AUD remains intact, but this is something to keep in mind as a substantial correction in Iron Ore is expected to weigh on the Antipodean currency.
JPY, CHF & USD:
US 10-Year Yields and US Real Yields remain the biggest focus for the USD and the JPY. After the big beat in US CPI, we saw US10Y resume its med-term uptrend, and saw USDJPY push higher as well.
As long as US10Y remains firm, we would expect that to put more upside downward pressure on JPY. As for the USD, a key focus point right now is real yields. A move higher in nominal 10-year yields will not be a lot of help for the reflation-battered Dollar if real yields continue to stay suppressed.
GBP:
The bullish bias for Sterling remains intact. Recent data has made it clear that the economic recovery is well underway, and markets are looking towards this week’s economic data to confirm that view.
The wild card to track in the week ahead is the virus situation as new cases of the Indian variant has been a concern. PM Johnson warned on Friday that the variant could pose a challenge to their reopening plans.
For now, everything seems under control, but this is a development to keep close track of.
EUR:
Still the biggest net-long position among the majors. There are still issues surrounding the fundamental outlook for the single currency, but despite that the EUR has remained very well supported over the past few weeks as the Dollar has continued to lose favour and as market participants look towards a fast economic rebound once the vaccination efforts allow the EU to lift lockdown restrictions.
If the EU can reach some of the targets it has set itself then we could well see a faster recovery playing out in the EU. However, when we compare that potential recovery in terms of growth or inflation differentials or compare the policy response between the US and UK or compare policy normalization expectations it seems the EU is still lagging behind the US and the UK.
For that reason, we are staying patient with our med-term bearish view on the EUR for now and will wait for more information on the vaccine and data front before we change our mind.
*This report reflects the COT data updated until 11 May 2021.
No surprise for the CAD to see the biggest net long positioning change among the majors, moving into second place below the EUR. The fundamental outlook for the CAD remains intact after the BOC’s recent hawkish tilt.
However, it seems like the BOC has taken notice of the rapid CAD appreciation and have fired a warning shot last week and given the markets an indication that USDCAD is approaching levels that could impact export competitiveness. Even though this doesn’t change the bullish outlook, it does pose a risk in the med-term.
For the AUD, the focus in the week ahead will turn to jobs data but also the Iron Ore prices. After a stellar run to the upside, it seems that China has finally stepped in to try and cool down the meteoric rise by banning steelmakers in Tangshan City (14% of China’s steel production) from fabricating or spreading price-hike information.
The move worked as Iron Ore prices took a tumble, but it’s worth noting that both Iron Ore and Copper saw some profit taking and overdue mean reversion earlier last week as well. With strong trends like these, seeing some pullback is to be expected, and as such they will be sensitive to potential bigger price reactions on news like this.
For now, the med-term bias for the AUD remains intact, but this is something to keep in mind as a substantial correction in Iron Ore is expected to weigh on the Antipodean currency.
JPY, CHF & USD:
US 10-Year Yields and US Real Yields remain the biggest focus for the USD and the JPY. After the big beat in US CPI, we saw US10Y resume its med-term uptrend, and saw USDJPY push higher as well.
As long as US10Y remains firm, we would expect that to put more upside downward pressure on JPY. As for the USD, a key focus point right now is real yields. A move higher in nominal 10-year yields will not be a lot of help for the reflation-battered Dollar if real yields continue to stay suppressed.
GBP:
The bullish bias for Sterling remains intact. Recent data has made it clear that the economic recovery is well underway, and markets are looking towards this week’s economic data to confirm that view.
The wild card to track in the week ahead is the virus situation as new cases of the Indian variant has been a concern. PM Johnson warned on Friday that the variant could pose a challenge to their reopening plans.
For now, everything seems under control, but this is a development to keep close track of.
EUR:
Still the biggest net-long position among the majors. There are still issues surrounding the fundamental outlook for the single currency, but despite that the EUR has remained very well supported over the past few weeks as the Dollar has continued to lose favour and as market participants look towards a fast economic rebound once the vaccination efforts allow the EU to lift lockdown restrictions.
If the EU can reach some of the targets it has set itself then we could well see a faster recovery playing out in the EU. However, when we compare that potential recovery in terms of growth or inflation differentials or compare the policy response between the US and UK or compare policy normalization expectations it seems the EU is still lagging behind the US and the UK.
For that reason, we are staying patient with our med-term bearish view on the EUR for now and will wait for more information on the vaccine and data front before we change our mind.
*This report reflects the COT data updated until 11 May 2021.
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