IFC Markets - Analytics

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    No boost in US dollar bullish sentiment yet

    Bullish bets on US dollar fell for the ninth straight week, declining to $5.74 billion from $8.31 billion against the major currencies in the previous week as evidenced by the report of the Commodity Futures Trading Commission (CFTC) covering data up to February 23. The uncertainty about US economy’s growth prospects coupled with concerns over global economic slowdown have led market participants to downgrade the likelihood of further interest rate hikes this year that were indicated in Federal Reserve’s December policy statement. US dollar strengthened during most of the previous year, gaining over 9% in 2015. Investors increased bullish bets on dollar in 2015 in anticipation of interest rate hikes that would make dollar deposits more attractive as Federal Reserve shifted to contractionary monetary policy. Investors are now reducing these bets as they believe the Federal Reserve will likely not raise rates this year. The minutes of Federal Reserve’s January policy meeting revealed that policy makers were concerned about the higher market volatility and needed more evidence on strength of US economy for additional rate hikes. Economic data during the week actually indicated US industrial production rose 0.9% on month in January after a 0.7% decline in December, headline inflation doubled to 1.4% in January from 0.7% in the previous month and initial jobless claims were lower than expected. While consumer price index remained unchanged in January after a 0.1% decline on month in December, core inflation rose to 2.2% from 2.1%. The reports reflect a positive dynamic for inflation as labor market continues to strengthen, which is what policy makers need for implementing additional rate hikes. Further positive economic reports will likely strengthen the case for additional rate hikes this year while market sentiment is currently under the influence of concerns over increased risks for US economic growth posed by slowdown in global growth. As is evident from the Sentiment table, sentiment improved for all major currencies. And Japanese yen and Australian dollar are still the two major currencies held net long against the US dollar.

    The bearish euro sentiment moderated with the pace of decline in net short bets falling almost tenfold compared with previous week. The net short position in euro narrowed $0.26bn to $6.4bn. The euro net short position fell as investors reduced both gross long and short positions by 6404 and 7752 contracts respectively. The Japanese yen sentiment continued to improve on the back of stronger demand for safe haven yen. The net long position in Japanese yen rose by $0.6bn to $5.8bn. Investors increased both the gross longs and gross shorts by 7858 and 3025 contracts respectively. Sentiment improved also for the British Pound with the net short position narrowing by $0.3bn to $2.8bn. Investors covered shorts as they cut also gross longs.

    The bearish sentiment continued to improve for the Canadian dollar with the net short position narrowing by $0.5bn to $2.67bn. Net short bets in Canadian dollar are now the third biggest after bearish bets in euro and Pound. Investors built the gross longs and covered shorts. The bullish sentiment toward the Australian dollar strengthened at a steady pace with the net long position rising by $0.48bn to $0.68bn. Investors increased the gross longs and cut the gross shorts. The sentiment improved also for the Swiss franc with net short bets narrowing by $0.25bn to $0.29bn. Investors covered shorts and increased gross longs.

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    market sentiment ratio long short positions

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