This data references the period ending Tuesday, Feb 2nd.

EURUSD

Non-Commercials reduced their net short positions in the Euro last week buying 7k contracts to take the total position to -46k contracts.  The continued short squaring in the Euro reflects the shifting sentiment which has dominated early 2017 trading as USD longs continued to be unwound. Political uncertainty linked to the policies of the new US administration on weighing on the USD outlook. The Fed have also outlined the uncertainty in their own outlook as they await further details on Trump’s proposed fiscal expenditure plans.

Eurozone data continues to print strongly with PMI data sets all highlighting growth in the economy and CPI continuing its upward trend. The Eurozone manufacturing PMI rose to a 69-month record high in January at 55.2, up from 54.9 in December, and above its earlier estimate of 55.1. The headline PMI reading has printed above the 50-level benchmark each month since July 2013. Eurozone CPI rose to 1.8% in January, against estimates of 1.5% and up from 1.1% the prior month. Core inflation, however, remained sticky at 0.9% in line with both estimates and the prior month’s reading.

Investors are now left questioning whether the ECB is likely to alter its policy course in light of the positive economic momentum despite Draghi’s commitment to cautiousness, highlighting the continued necessity of monetary stimulus at the ECB’s last meeting.

GBPUSD

Non-Commercials reduced their net short positions in Sterling last week buying 1.5k contracts to take the total position to -62k contracts. Positioning in Sterling reflects the continued uncertainty with which investors are viewing the UK. Brexit headlines continue to hold flows hostage, as market awaits the official triggering of Article 50, which UK Parliament has just approved in formal voting.

At their recent meeting, the Bank of England revised both its growth and forecasts higher. The central bank now expects growth of 2% this year, up from the 1.4% initially predicted in November last year. The bank also looks for inflation to overshoot its 2% target and hit 2.8% in the first half of 2018. The BOE did, however, highlight uncertainty linked to Brexit which they noted could still have a negative impact on the economy. On the data front, Markit/CIPS construction PMI slipped to a five-month low of 52.2 in January.

USDJPY

Non-Commercials reduced their net short positions in the Japanese Yen last week buying 8.5k contracts to take the total position to -58k contracts. Short squaring in the Yen is not just a function of USD weakness but also of improving sentiment towards Japan. At their January policy meeting, the Bank of Japan kept policy unaltered though did note a more positive outlook on growth and remained unconcerned by the inflation outlook.

The BOJ kept short-term rates at -0.1% and the target for the 10Y JGB yield at 0%. The bank’s economic outlook was of interest this time around as the BOJ raised its GDP forecast to 1.5% in the fiscal year 2017, consistent with previous comments from BOJ Governor Kuroda.

Regarding data, Japan’s consumer confidence index rose to 43.2 in January, recording its highest level since September 2013 amid anticipation of a broad economic recovery. Encouraging optimistic sentiments, the Nikkei services PMI held around a one year high of 51.9 in January.

USDCHF

Non-Commercials increased their net short positions in the Swiss Franc this week selling a further 3.5k contracts to take the total position to -17k contracts. The resumption of short selling in the Swiss Franc, which has seen only modest position changes over recent weeks, comes on the back of weak economic data.

Despite this, CHF continues to gain against both the US Dollar and the Euro, inviting expectations that the SNB will once again be forced to intervene in the markets should this appreciation continue. However, some market participants are taking the view that the SNB has scaled back interventions, allowing scope for the rise, and will continue to tolerate further price rises.

AUDUSD

Non-Commercials increased their net long positions in the Australian Dollar last week buying a further 1.7k contracts to take the total position to 12k contracts. Positioning in AUD reflects growing optimism for the economy, fuelled in part by the surge in commodity prices over the last year which has boosted Australia’s export business.

The latest trade balance data showed that the country’s trade surplus jumped to a record high of $3.5 billion, wildly beating expectations of a $2.2 billion reading and also printing strongly above the prior record of $2.236 billion set in February 2009. Given these positive data sets, the RBA is widely expected to maintain policy at its meeting this week.

USDCAD

Non-Commercials increased their net long positions in the Canadian Dollar last week buying a further 1k contracts to take the total position to 3.5k contracts.  CAD continues to find buying interest despite BOC Governor Poloz’s recent comments regarding the uncertain outlook for the economy.

Much of this uncertainty is linked to President Trump’s intention to renegotiate NAFTA. On the data front, the recent 4Q GDP reading came in above expectations at 1.6% vs. 1.4% expected YoY while the MoM reading also jumped to 0.4% beating expectations of 0.3%.

The post FX COT Update: USD Long Unwind Continues appeared first on Orbex Forex Trading Blog.