Traders are backing the US dollar to rally further from here

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For the first time since July, currency traders are long the US dollar.

According to ANZ, citing data released by the US Commodity Futures Trading Commission (CFTC), net speculative long positioning stood at $US5 billion last week, a stark turnaround from the $US1 billion short position held in the previous week.

Net speculative positioning, defined as non-commercial positions reported by the CFTC, is the sum of long and short options and futures positions in a particular asset, in this case the US dollar.

A net long position indicates that traders, collectively, are looking for strength in the period ahead.

While this only captures positioning reported by the CFTC, it can be used to extrapolate broader views held by currency traders.

On that front traders are becoming increasingly optimistic about the greenback’s prospects, buying for a fifth consecutive week, leaving net positioning long for the first time since late July.

Source: ANZ

According to Khoon Goh and Rin Sen, strategists at ANZ, dollar buying occurred against all major currencies last week, especially the euro.

“EUR saw the most selling with overall positioning turning net short for the first time since early July,” the pair wrote in a note released today.

“The $US1.9 billion of net selling resulted in funds holding an overall net short EUR position of $US1.1 billion.”

The US dollar also found favour against commodity currencies such as the Canadian, Australian and New Zealand dollars despite firmer commodity prices.

“Commodity currencies saw combined net selling of $US2.6 billion,” Goh and Sen said.

“Net CAD longs were reduced by $US1.4 billion to $US3.5 billion, the lowest in 13 weeks. AUD’s overall net long positions were reduced by $US700 million to $US4.2 billion. Fund’s net short NZD position was extended by $US400 million to $US700 million, the most since early September 2015.

Dollar buying of $US1.1 billion was also recorded against the Swiss franc while traders also trimmed long positions in the Japanese yen and British pound.

The turnaround in US dollar positioning mirrors the recent price action in the US dollar index, or DXY, which has gained over 4% since early September, partially recovering the 12% plus decline seen in the first eight months of the year.

With positioning across most major currencies now less extreme compared to what was seen just a month ago, it suggests that fundamentals and technicals, rather than positioning, will dictate how currency markets will fare in the final throngs of the year.

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