AUD, NZD & CAD:
A solid week for the CAD in terms of price action means the biggest increase in positioning among the majors should not be a surprise. The BOC’s hawkish tilt has put the CAD in pole position for the bullish currencies among the majors, and as long as policy normalization continues, and the data stays positive and Oil prices remain buoyed that should stay intact.
The jobs data was a minor set back for the CAD on Friday, but a miss was largely expected due to the impact of the virus and should not be enough to change the med-term outlook for the BOC or the CAD.
In terms of incoming events, the only noticeable one for AUD is the incoming Annual Budget Release, but apart from that main focus for the high betas should be overall risk appetite.
JPY, CHF & USD:
What a move in the Dollar after Friday’s NFP! Not surprising though as the med-term bias remains titled to the downside for the greenback as long as the Reflation and Global Synchronized Recovery driver stays intact.
The more interesting development was the downside in the Dollar despite a solid push higher in US10Y. It’s important though to remember that even though yield differentials are important drivers for currencies they are not the only drivers.
For the past couple of months, the correlation to real yields (nominal yields – inflation expectations) is another important driver alongside that of Eurodollar futures. On Friday, Eurodollar futures shot up and Real Yields shot down after the NFP jobs report, all in all a strong bearish cocktail for the Dollar despite US10Y moving up.
This week the attention turns to CPI on Wednesday as well as Retail Sales on Friday. In terms of the CPI event, it will be important to keep the Real Yield dynamics for the Dollar in mind, as a strong CPI print might not necessarily translate into Dollar strength if inflation expectations outpace US10Y and pushes real yields lower.
GBP:
The move we’ve seen lower in CFTC positioning for the GBP is mostly as a result of the downside price action we saw at the end of last week which was most probably due to some de-risking going into this past week’s BOE and elections.
The fundamental bias remains unchanged and tilted to the upside for Sterling. Even though the BOE did move along with tapering, it was framed as a technical adjustment, but the bank did provide a more upbeat outlook for the economy and the recovery.
With the proximity risks out of the way we would anticipate the week ahead to see a continuation of the upward trajectory barring of course any negative surprises.
EUR:
Still the biggest net-long position among the majors. There are still issues surrounding the fundamental outlook for the single currency, but despite that the EUR has remained very well supported over the past few weeks as the Dollar has continued to lose favour.
For now, it seems that a lot of participants are still banking on a potential or eventual EU recovery story from H2 as the vaccination roll out gain positive momentum. If the EU can reach some of the targets it has set itself then we could well see a faster recovery playing out in the EU.
However, when we compare that potential recovery in terms of growth or inflation differentials or compare the policy response between the US and UK or compare policy normalization expectations it seems the EU is still lagging behind the US and the UK, which is why we are staying patient with our view on the EUR for now and waiting for more information on the vaccine and data front before we change our mind.
*This report reflects the COT data updated until 4 May 2021.
A solid week for the CAD in terms of price action means the biggest increase in positioning among the majors should not be a surprise. The BOC’s hawkish tilt has put the CAD in pole position for the bullish currencies among the majors, and as long as policy normalization continues, and the data stays positive and Oil prices remain buoyed that should stay intact.
The jobs data was a minor set back for the CAD on Friday, but a miss was largely expected due to the impact of the virus and should not be enough to change the med-term outlook for the BOC or the CAD.
In terms of incoming events, the only noticeable one for AUD is the incoming Annual Budget Release, but apart from that main focus for the high betas should be overall risk appetite.
JPY, CHF & USD:
What a move in the Dollar after Friday’s NFP! Not surprising though as the med-term bias remains titled to the downside for the greenback as long as the Reflation and Global Synchronized Recovery driver stays intact.
The more interesting development was the downside in the Dollar despite a solid push higher in US10Y. It’s important though to remember that even though yield differentials are important drivers for currencies they are not the only drivers.
For the past couple of months, the correlation to real yields (nominal yields – inflation expectations) is another important driver alongside that of Eurodollar futures. On Friday, Eurodollar futures shot up and Real Yields shot down after the NFP jobs report, all in all a strong bearish cocktail for the Dollar despite US10Y moving up.
This week the attention turns to CPI on Wednesday as well as Retail Sales on Friday. In terms of the CPI event, it will be important to keep the Real Yield dynamics for the Dollar in mind, as a strong CPI print might not necessarily translate into Dollar strength if inflation expectations outpace US10Y and pushes real yields lower.
GBP:
The move we’ve seen lower in CFTC positioning for the GBP is mostly as a result of the downside price action we saw at the end of last week which was most probably due to some de-risking going into this past week’s BOE and elections.
The fundamental bias remains unchanged and tilted to the upside for Sterling. Even though the BOE did move along with tapering, it was framed as a technical adjustment, but the bank did provide a more upbeat outlook for the economy and the recovery.
With the proximity risks out of the way we would anticipate the week ahead to see a continuation of the upward trajectory barring of course any negative surprises.
EUR:
Still the biggest net-long position among the majors. There are still issues surrounding the fundamental outlook for the single currency, but despite that the EUR has remained very well supported over the past few weeks as the Dollar has continued to lose favour.
For now, it seems that a lot of participants are still banking on a potential or eventual EU recovery story from H2 as the vaccination roll out gain positive momentum. If the EU can reach some of the targets it has set itself then we could well see a faster recovery playing out in the EU.
However, when we compare that potential recovery in terms of growth or inflation differentials or compare the policy response between the US and UK or compare policy normalization expectations it seems the EU is still lagging behind the US and the UK, which is why we are staying patient with our view on the EUR for now and waiting for more information on the vaccine and data front before we change our mind.
*This report reflects the COT data updated until 4 May 2021.