IFC Markets - Analytics

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    No Boost in US Dollar Long Bets Ahead of Federal Reserve's Decision

    US dollar net long bets slipped to $23.84 billion from $25.05 billion against the major currencies in the previous week, according to Commodity Futures Trading Commission (CFTC) data covering up to January 26. Major economic reports painted a mixed picture of US economy. The headline inflation rose to 0.7% from 0.5% in December with core inflation rate edging above 2% to 2.1%. But consumer prices fell 0.1% on month in January. Manufacturing sector contracted further as evidenced by further negative readings of Philadelphia and Chicago Fed Manufacturing Indexes in December at 3.5 and 0.22 respectively, which followed negative readings of 10.2 and 0.36 in the previous month. US home prices in 20 metropolitan areas rose 5.8% in November, faster than the 5.5% increase in October. At the same time building permits and housing starts fell 3.9% and 2.5% in December, though existing home sales jumped 14.7% after a 10.5% in November. The positive trend in home prices is a welcome indication of housing market strength, on the other hand initial jobless claims rose pointing to slowing in labor market improvement. Soft inflation and manufacturing indicators reflect weaker demand. Investors pared long US dollar bets ahead of the FOMC decision as the economic reports didn’t provide support for expecting stronger US economic performance, not mentioning volatile international markets. As is evident from the Sentiment table, sentiment improved for the euro, yen and Australian dollar. And as investors turned bearish on Swiss franc the yen remains the only major currency held net long against the US dollar.

    The bearish euro sentiment moderated further at a slightly higher pace with the net short bets narrowing by $1.3bn to $17.28bn. This is a surprise development after last week ECB President Mario Draghi didn’t exclude expanding the stimulus program to provide further support as inflation shows no sign of improving in euro-zone. Euro’s share slipped to about 72% of long US dollar position. The euro net short position declined as investors increased long positions and covered shorts by 1997 and 7803 contracts respectively. The bullish Japanese yen sentiment strengthened as net long bets continued to rise at about past week’s pace, increasing by $1.2bn to $5.2bn. Investors increased the gross longs by 8143 contracts and covered shorts by 4230. Sentiment continued to deteriorate for the British Pound with the net short position widening by $0.8bn to $4.2bn. Investors cut the gross longs and increased gross shorts.

    The bearish sentiment dominated also for the Canadian dollar with the net short position widening by $178 million to $4.73bn. Canadian dollar remains the second-largest net short bet after euro, closely followed by British Pound. Investors reduced the gross longs and built gross shorts. The sentiment toward the Australian dollar improved with net short bets falling by $0.2bn to $2.2bn. Investors increased the gross longs and covered gross shorts. The sentiment towards the Swiss franc continued to deteriorate with a weekly increase of $0.6bn in short bets turning the net long position into a net short position of $0.5bn. Investors increased the gross shorts while they cut the gross longs.

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