US Dollar, EUR/USD, USD/JPY, COT Report –Analysis
- US Dollar Short Squeeze Underway
- GBP/USD Flips to Net Short
- AUD/USD Longs Halved, Remaining Longs Vulnerable to Dovish RBA Surprise
The Predictive Power of the COT Report
Source: CFTC, DailyFX (Covers up to September 29th, released October 2nd)
US Dollar Correction, GBP/USD Flips to Short, AUD Longs Halved - COT Report
In the week to September 29th, given the corrective bounce in the US Dollar, bearish positioning had been cut by $3.2bln against G10 currencies. That said, while overall short positioning in the greenback remains large, as global macro uncertainties rise in relation to the US election as well as second wave concerns and subsequent renewed lockdown measures, safe-haven flows will underpin the greenback, thus allowing for a further squeeze in USD shorts.
Speculators flipped to net short in the Pound following a $1.26bln reduction in net longs, accounting for roughly a third of the positioning change in the US Dollar. Both the EU and UK have yet to make enough headway to solve significant differences in key areas such as fisheries and state aid. However, with the markets remaining hopeful that a Brexit agreement can be reached, this has prevented a free-fall in the Pound. That said, as funds begin to shed their net longs, the Pound is likely to remain erratic with headline risk heightened.
Long exposure in the Australian Dollar had been halved after hitting over a 2yr peak. However, as uncertainty tracks higher, with the market still long Aussie, the high-beta currency remains vulnerable to pullbacks. Alongside this, near-term concerns also centre around the RBA rate decision, where there is an outside chance of a dovish surprise with a 15bps cut in the cash rate target, alongside this 3yr yield curve target and Term Funding Facility.
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