FX traders have been piling into the Japanese yen ahead of this week's UK Brexit vote

Photo by Chung Sung-Jun/Getty Images

FX traders continued to seek the safety of the Japanese yen ahead of this week’s UK Brexit vote, increasing their net long positioning in the currency to the highest level seen in seven weeks.

According to ANZ, citing data released by the US Commodity Futures Trading Commission (CFTC) late last week, net long positioning in the yen surged by US$2.2 billion to US$5.3 billion, the highest level seen since early May.

Net positioning is simply the value of long positions minus the value of short positions in any one currency. A net long position indicates that the market, as a collective whole, is betting on further gains in a particular currency, in this case the yen.

Although the CFTC data only captures positioning from leveraged traders, it can be used to identify broader positioning across FX markets.

“One currency benefiting from Brexit uncertainty is the yen,” said Khoon Goh, senior FX strategist at ANZ. “The yen’s safe haven status has been apparent in recent weeks.”

Net short positioning in the Swiss franc, deemed by many across markets as another safe haven currency, was also reduced substantially during the week, underlining heightened levels of investor uncertainty.

While FX traders continue to seek the relative safety of the yen and franc, it was a different story for the British pound, the currency likely to experience the greatest impact from this week’s vote. It’s basically flat.

“Despite increased concerns over Brexit which pushed sterling weaker, net short GBP positions were actually reduced,” notes Goh. “Overall GBP positioning has been close to square in recent weeks.”

The chart below, supplied by ANZ using the CFTC’s weekly commitment of traders report, shows the sharp reduction in net short positioning in the pound before this week’s EU referendum.

While the figures suggest that investor uncertainty continued to increase last week, it must be remembered that the CFTC report captured positioning as at the close of business last Tuesday.

In recent days polls on the UK’s EU referendum have swung back in favour of a remain vote prevailing, helping to support risk assets and seeing recent strength in the Japanese yen and other safe haven assets unwound by some investors.

A “Bremain” outcome will almost certainly lead to an unwind in long positioning in safe haven assets such as the yen, and help to support risk assets in the immediate aftermath of the vote.

A “Brexit” outcome, while less-favoured by markets, will have the opposite, and in all likelihood larger, market impact.

Results from the UK referendum should start to trickle out early Friday morning AEST.

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