COT CURRENCY REPORTOverall:
With the CFTC data updated until 6 April the AUD showed the biggest decrease of (-8K) and the JPY showing the biggest increase of (+1K).
AUD, NZD & CAD:
Positioning data for the AUD, NZD and CAD updated until the 6th of April still shows more room to run to the upside for the three high beta commodity-sensitive FX majors, especially after the recent push lower in the likes of the NZD and AUD.
This week's upcoming RBNZ meeting is expected to largely be a non-event and should not have much to change the med-term outlook for the bank or the NZD. Some meaningful data to watch in the week ahead will be Aussie Jobs data as well as important Chinese growth data for the AUD.
As for the CAD, Friday's stellar jobs report should have solidified the market's expectations that the BOC will move forward with tapering QE at the April meeting, and should provide upside momentum for the currency running into the policy meeting.
JPY & CHF & USD:
The JPY saw a modest come back in positioning, which was to be expected as the currency saw a 96K positioning change going from a +29K net long to a -59K net short position in 6 short weeks. That registered as more than a 4 standard deviation move two weeks ago, and is still showing a -3.3 z-score on a 1-year look back with Friday's CFTC update.
The big driver for the JPY remains the US10Y, which means this week's upcoming US bond auctions (10- year and 30-year), as well as incoming CPI data will be very important for the US10Y and thus the JPY.
With yield differentials one of the key drivers* of the Dollar in recent weeks, the incoming US data points will be the main focus point for the greenback in the week ahead, alongside overall risk appetite as the better than expected US data and a sizable unwind of the Dollar's oversubscribed short bets have arguably turned the attention for the Dollar back to the med-term bias.
GBP:
The past few trading sessions have not been kind to the GBP, as short-term concerns about the Astrazeneca vaccine has weighed on the Pound. However, arguably the biggest driver for Sterling has been cross flows as EURGBP saw a sizable squeeze in the extended bearish trend.
Even though the bias for EURGBP remains titled lower in the med-term, any extended trend is always susceptible to violent squeeze when reaching key areas of support or resistance.
The challenge with a squeeze is that we don't know how long it will last, and with moves like these it's best to either wait for a new fresh bearish catalyst to use as a trigger for new shorting opportunities, or to wait for the pair to break back below key technicals levels with some follow through.
EUR:
The upside in the EUR this past week has gone against the overall downside bias for the single currency which has been based on the EU's slower vaccine roll out; rise in virus cases; new lockdown restrictions; growth differentials; monetary policy expectations; and fiscal stimulus.
Some have argued that the big unwind in net long positioning over the past few weeks have seen the EUR reach an equilibrium as most of the negatives mentioned above should already be reflected in the price at this point. ING has also noted that there is a possibility that "traders wanting to jump in early on the EUR recovery story – more signs of which should emerge through the quarter as, for example, vaccination programs gain pace in the likes of France and Germany".
However, in our view it's far too early to be buying the EUR en masse in the hopes of an eventual catch up in vaccines and growth, especially on the growth side with the recovery fund yet to be ratified and large parts of the EU still under lockdowns while the UK and US is opening up.
But, as we noted last week, the sensitivity of the EUR to the Dollar also explains some of the upside in the EUR, and remains a key factor to watch in the week ahead.
*This report reflects the COT data updated until 6 April 2021.
