COT CURRENCY REPORTThis report reflects the COTdata updated until 23 Mar 2021.
Overall:
With the CFTC data updated until 23 March the JPY showed the biggest decrease of (-14K) and the EUR showing the biggest increase of (+3K).
AUD, NZD & CAD:
After sizable moves lower with the recent risk off flushes, all three high betas remain bullish in the med-term outlook, and with relatively small net long positions, there is still more room to run. In the week ahead it's going to be very quiet on the data front, but we will have a few events to watch for WTI which could have impact on the CAD such as the upcoming JMMC meeting and more
developments with the Suez Canal.
Also keep in mind this week we will have month-end and quarter-end, we also have a shortened week due to Good Friday, which means liquidity is likely going to be unfavourable. Thus, even though med-term biases remain intact do watch out for erratic price moves without any real catalyst.
JPY & CHF & USD:
Another big increase in net-short positions for the JPY. The speed of the move in the JPY has been very excessive in the short-term, with the 1-year z-score printing a 4.5 with this past week's data.
That is a very big deviation from the norm, which means we do want to be a bit careful with the JPY from a positioning point of view. Even though the JPY has been at the mercy of moves in US10Y, a sudden move higher from some profit taking is a risk to keep in mind.
The Dollar was the star performer last week, pushing higher across the board even while US10Y was pushing lower for the majority of the week. The short-term drivers that has recently affected the Dollar is still very much in play such as yield differentials, better relative growth & inflation dynamics as well as the faster policy normalization expectations for the FED.
However, again from positioning, the move in the USD does look stretched in the short-term so keep that in mind going into the new week.
GBP:
The bias for Sterling remains titled to the upside, especially versus the EUR, where EURGBP managed to close below the important support at 0.8550.
This week is going to be very light on the data front, so focus will remain on the overall driver for EURGBP such as vaccine roll out (UK well ahead), growth expectations (UK well ahead), monetary policy (UK far less dovish), fiscal policy (EU still waiting for ratification), new virus cases (rising much faster in EU).
EUR:
The reasons to expect downside for the EUR has been on the rise recently. Whether we consider the vaccine roll out, or recent virus numbers, or lockdown restrictions, or relative growth dynamics, or policy normalization expectations, all the above point to further downside for the EUR versus the USD and GBP, as well as the high betas.
Despite shedding a lot of net long positioning in the past two months, the EUR remains the largest net long position among the majors, which means there is quite a bit of room to run to the downside if the above concerns continue to pressure the single currency.
For the week ahead, the focus will be on the incoming US ISM Manufacturing PMI as well as the March NFP report (which is expected to show a sizable jump on the headline). If we see these two data points print significantly higher than expected, it will mean more downside for the EURUSD, which should also be supportive for further EURGBP downside as well.
