Currency traders are continuing to pull their bullish US dollar bets, mirroring the recent price action in the greenback.
According to figures from the US Commodity Futures Trading Commission (CFTC) on Friday, net long speculative positioning in the US dollar fell to the lowest levels in a year last week, coinciding with a raft of hawkish headlines from other major central banks along with continued weakness in US economic data.
“Leveraged funds remained net USD sellers, reducing their net USD longs by $US2 billion to $US4.7 billion, the lowest since June 2016,” said Irene Cheung and Rini Sen, strategists at ANZ Bank.
Net speculative positioning is simply the sum of long and short options and futures positions in a particular currency reported by the CFTC in its weekly Commitment of Traders report, released each Friday.
When net positioning is short, it suggests the market is looking for price weakness. Long positioning indicates that the opposite outcome is expected.
To determine speculative positioning, ANZ uses noncommercial positions reported by the CFTC as they “seek to profit from movements in the asset price as opposed to hedging business activities”.
Cheung and Sen said that the US dollar selling was most pronounced against the Canadian dollar and euro following hawkish rhetoric from the Bank of Canada and European Central Bank.
“Dollar selling was the highest against the CAD on the back of a hawkish Bank of Canada,” the pair said, adding that “funds turned bullish on the EUR after ECB president Mario Draghi signalled a possible reduction in monetary stimulus going forward”.
Funds reduced their net CAD shorts by $US2.3 billion to $US3.2 billion, while net short positioning in the euro fell by $US1 billion to $US1.5 billion.
Buying in the Canadian dollar also helped to spur renewed demand for commodity currencies such as the Australian and New Zealand dollars with net long positioning in each increasing by $US600 million and $US300 million respectively.
While traders sold the US dollar against the euro and commodity currencies, it found support against the Japanese yen and UK pound over the same period.
However, that wasn’t enough to stop net long positioning in the greenback falling to a one-year low.
The “Trump bump”, as it has become known, has now been reversed and then some.
And if the recent price action in the US dollar is anything to go by, US dollar long positioning may have been reduced further in recent days.
“Weak price action of the USD after the cut-off date suggests a further reduction in net USD longs, with the main exception of USD/JPY,” say Cheung and Sen.
The CFTC figures captured positioning on Tuesday, June 27.
The pair say that strong gains in the EUR and UK pound, in particular, point to a further paring back of short positions in the latter parts of last week.
Last Friday, the US dollar index fell to as low as 95.47, leaving it at the lowest level since October 3 last year.