USD Net Long Falls Considerably as EUR, JPY Net Shorts Fall

Investors reduced US dollar net long position considerably for the first time in six weeks, bringing it down to $32.26 billion from $37.19 billion in the previous week as evidenced by the report of the Commodity Futures Trading Commission (CFTC) covering data up to August 18. The devaluation of yuan by China by about two percent on August 11 was interpreted by many as a sign China’s economy is in much worse shape than officially acknowledged. With China’s economy expected to experience much slower growth than previously anticipated investors downgraded the world economic growth outlook, which also affected the perceived likelihood of rate hike by the Fed. Amid concerns that yuan’s devaluation will give rise to chain of currency devaluations investors revised downward the likelihood of interest rate hike in September, resulting in reduced bullish bets on dollar. As is evident from the Sentiment table, the sentiment improved for all major currencies except for the Swiss franc, and all currencies are still held net short against the dollar.

The euro sentiment improved markedly. The net short bets in euro narrowed $3.1bn to $12.7bn, with euro’s share falling further to about 40% of long US dollar position. The euro net short position fell as investors covered shorts and increased gross longs.

The Japanese yen sentiment also improved on the back of short covering with net short position narrowing $1.45bn to $9.05bn. The Japanese yen still accounts for the second highest short bets against US dollar, with yen’s share of aggregate US dollar long position remaining stable at 28%. The British pound sentiment improved with net short bets narrowing $0.61bn to $0.38bn as investors increased both gross longs and gross shorts.

The Canadian dollar sentiment started to improve after consecutive weekly deteriorations at slowing paces. The Canadian dollar net short position narrowed $25 million, leaving the net total roughly unchanged at $5.1bn. Investors cut both gross longs and gross shorts. The Australian dollar sentiment showed similar dynamic with net short bets narrowing by $83 million to $3.6bn as investors cut gross longs and covered shorts. Swiss franc sentiment continued to deteriorate at a slower pace with the net short position widening $0.37bn to $1.2bn. Investors increased gross shorts while they cut gross longs.