FXStreet (Guatemala) – Analysts at TD Securities noted the Commitments of Traders Report, week Week ending Tuesday, August 25th
Key Quotes:
“CFTC data for the week ending August 25th revealed a seismic shift in core USD positioning. We estimate that aggregate longs were reduced by USD8bn to USD26.8bn. This is the biggest reduction since mid-June but should not come as a surprise given the market riot last week. We do not see a singular catalyst for the equity rout—which has retraced about half its losses (at least in the S&P500) – but an accumulation and combination of market perception that the Fed minutes contained a dovish overtone, significant disappointment in China manufacturing PMI which then set up expectations/market speculation that the PBoC would ease policy over the weekend. While the PBoC eased on Tuesday, it was perceived as reactive instead of proactive and compelled the market to effectively price out the Fed in September. EUR and JPY were the prime beneficiaries with EURUSD punching just above 1.17 and USDJPY crashing down to 117.00.”
“As such, net EUR shorts were sharply reduced by 22.5k contracts to –66.1k, the largest shift since mid-June prior to the FOMC meeting. The reduction in net shorts was even more dramatic in JPY, where positioning changed by 47.7k contracts—the biggest one week change since March 2011. The change in JPY positioning was largely driven by asset managers than by leveraged accounts. If sustained, we would view this as an indication of a change in core views over the JPY, that may suggest that it could be a frustrating short. We think that is a nontrivial risk, particularly over the medium-term. Since the Tuesday, the stock market has begun to normalize and USD longs have begun to accumulate. We have noted for some time that a final flush of USD longs was needed to extend the next phase of USD strength and we may have achieved that objective.”
“That said, TD has delayed its forecast for a September hike until March 2016. The change in view follows a Dudley’s comments last week where he noted that financial market events made the case for September liftoff “less compelling”. Importantly, the linkage of financial markets to Fed policy is through the wealth channel, which dampens the inflation outlook further. Note that we view the risks of an earlier rate hike as nontrivial.”
“Elsewhere, GBP has moved into net long territory for the first time since September 2014. Net GBP longs stand at 3.3k contracts and we think it is still under-owned. We are constructive on the UK economy which should see inflation bottom at the turn of the year and leave the BOE compelled to lift policy after the Fed. If the Fed first hikes in March, we see the BOE following with a hike in May next year.”
“Finally, we think NZD is too weak relative to positioning implied in CFTC. Net shorts were pared back again to –6.1k contracts, so we see the risk of a short squeeze in the currency. Bearish bets in the CAD were also scaled back –60k contracts (from –66.8k) though leveraged accounts continued to increase net shorts. We are most bearish the CAD within the commodity currency bloc, but AUD net shorts have increased to –63.7k (from –49.9k) as the currency is still viewed as a proxy currency for China, where concerns of a hard landing remain.”
(Market News Provided by FXstreet)