IFC Markets - Analytics

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    US dollar net longs rise ahead of May jobs report

    US dollar net long position grew to nearly two month high of $4.8 billion from $4.19 billion against the major currencies during the previous week, according to the report of the Commodity Futures Trading Commission (CFTC) covering data up to May 31. As Federal Reserve officials expressed their support for a rate hike this summer positive economic data like growing retail sales and strong new home sales suggested economic growth was improving relative to the first quarter. The second reading of first quarter GDP was another positive report which indicated the GDP grew at 0.8% annual rate over the last quarter, a 0.3% improvement over the first reading. Housing prices also gained in March rising higher-than-expected 0.7% on month according to Federal Housing Finance Agency, indicating a healthy demand for housing. Improved consumer sentiment in May for the first time after four monthly declines since the start of the year and rising durable goods orders were two other major data in the past week indicating improved outlook for US economy. Investors increased bullish bets on US dollar ahead of disappointing jobs market report which came out last Friday. The unexpectedly weak May jobs report weighed on US dollar and will most likely result in reduction in bullish US dollar bets the next week. As is evident from the Sentiment table, sentiment deteriorated for Australian dollar, Swiss franc and Japanese yen. And the Australian dollar joined the euro and the British Pound as the third major currency held net short against the US dollar.

    The bearish euro sentiment was essentially unchanged as data indicated positive inflation trend with German headline inflation and euro-zone core inflation rising marginally in May: from minus 0.1% to plus 0.1% and from 0.7% to 0.8% respectively. The net short position in euro declined $38 million to $5.2bn. The euro net short position remains the largest net short against the dollar. The net short position in euro narrowed as investors increased the gross longs by 4263 contracts and built gross shorts by 4022 contracts respectively. The British Pound sentiment improved with the net short bet in British Pound narrowing at less than one tenth of last week’s pace by $27 million to $2.97 billion. The net short position in British Pound narrowed as both the gross longs and the gross shorts were cut. The bullish Japanese yen sentiment continued to deteriorate. The net long position in Japanese yen fell for the sixth week, contracting at roughly one fifth of previous week’s pace by $0.8bn to $1.67bn. Investors cut the gross long positions by 7828 contracts and covered shorts by 606.

    The sentiment improved for the Canadian dollar with the net longs rising by $478 million to $2.0 billion. Investors increased the gross longs and cut the gross shorts. The sentiment toward the Australian dollar turned bearish as $353 million in short bets converted the $9 million net long position into $0.34bn net shorts. The bullish sentiment toward the Swiss franc weakened considerably with the net long position falling by $481 million to just $16 million. Investors cut the gross longs and increased the gross shorts.

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