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In the latest CFTC commitment of traders report from July 25th, EUR sentiment continues to deteriorate, as seen in this week’s $4.3bn widening in the net short to $15.0bn — a level not seen since November 2012. Starting to sink in is the fundamental fact of negative deposit rates for the eurozone and the relative interest rate differential, although small between the major central banks. The euro touched an 8 month low against the dollar this past week, and it seems traders are keen to see the euro float a bit lower after rallying for the first 6 months of 2014. But traders should remain cautious of a crowded trade scenario developing and a natural equilibrium snap-back coming in to level things out…
You can see in the latest report graph from the week prior (July 22nd thru July 25th) the EUR and JPY remain the most bearish- sentiment wise in the eyes of investors and traders. The Aussie dollar has peaked in it’s bullish sentiment for the year, along with CAD and the Mexican Peso, GBP longs have also pared back their bets after the pound has been on a tear ripping thru the 1.70 handle. For brokers and banks, it looks like the most widely traded pair, the EUR/USD could provide an additional volume spark in the coming months ahead if bears continue to pile on to EUR and look to target the 1.30 handle in the cross…in which it seems the ECB has no problem with.
Interesting to note is the that investors and traders have covered $10.7bn worth of short JPY positions in 2014, discouraged by range bound movement in spot prices. This pair’s volatility being pared back has hurt volumes quite a bit as no other currency pair could compete with the massive stimulus program embarked on almost 2 years ago. We noted in the last report how traders are remaining stubbornly short JPY like it is 2012. Meanwhile, the pair has remained quite stable just above the 100 handle which obviously was the mark the BoJ was targeting per their easing program. Stay tuned to LeapRate each week to get the latest sentiment report for the FX markets…
Source: CFTC & Scotiabank