Dollar net shorts rise despite nonfarm payrolls surprise

Non farm payrolls in the United States increased by 209 thousand in July of 2017, above an 183 thousand expected addition though below the upwardly revised 231 thousand in June. A welcome positive development in labor market was an albeit small but still a rise to 0.3% in average hourly earnings on month from 0.2% in June, with the gain in wages steady at 2.5% year on year. A sustained increase in wages is what is needed for recording increases in inflation as rises in earnings boost consumer demand leading to higher prices and accelerating economic expansion. The Job Openings and Labor Turnover survey results confirmed that the demand for labor increased as job openings in the United States increased to an all-time high of 6.163 million in June of 2017. A further positive development was the Markit’s US report which pointed to accelerated expansion in the private sector in July as the final reading of Composite PMI came in at 54.6, above the earlier flash estimate of 54.2 and up from 53.9 in June. Strength in manufacturing sector was highlighted by 2% rise in factory orders in June as previous month’s reading was upgraded to 0.3% decline from 0.8% fall. At the same time the Institute for Supply Management reported the non-manufacturing sector growth slowed with the ISM Non-manufacturing PMI declining to 53.9 in July from 57.4 in previous month. After data pointed to strong labor market and private sector the CME Group’s FedWatch tool indicated the likelihood of a rate hike in December rose to just above 50%. Nevertheless traders built short dollar bets. As is evident from the Sentiment table, sentiment improved for Japanese yen, Canadian dollar and euro. And the euro, Canadian and Australian dollars remained the three major currencies held net long against the US dollar.

The euro bullish sentiment strengthened as euro-zone retail sales rose 3.1% on year in June from 2.4% in previous month and the private sector expansion continued in July though the growth slowed as the Composite PMI declined to 55.7 from 56.3 in June . The net long euro position rose $1.56bn to $13.76bn. Investors built the gross longs and cut shorts by 9754 and 1294 contracts respectively. The British Pound sentiment improved following a decision by the Bank of England Monetary Policy Committee to leave the monetary policy unchanged and the increase in UK Service PMI to 53.8 in July from 53.4 the previous month. The net short position in British Pound narrowed $0.39bn to $2.04bn as investors reduced the gross longs and increased shorts by 240 and 4532 contracts respectively. The bearish Japanese yen sentiment moderated as the Consumer Confidence index rose in July to 43.8 from 43.3. The net short position in yen narrowed $1.85bn to $10.86bn. Investors built the gross longs and covered shorts by 3365 and 13018 contracts respectively.

The Canadian dollar sentiment improved significantly as unemployment fell to 6.3% in July from 6.5%. The net long Canadian dollar position rose $1.72bn to $4.96bn. Investors built the gross longs and covered shorts. The Australian dollar sentiment deteriorated slightly as the trade surplus declined to A$0.86 billion in June from A$2.02 billion the previous month. The net longs fell by $0.25bn to $4.59bn. Investors built both the gross longs and shorts. The sentiment toward the Swiss franc turned bearish as the disinflation accelerated in July to minus 0.3% on month from negative 0.1% in June while unemployment rate remained steady at 3.1% and retail sales rose 1.5% on year in June from 0.8% decline in previous month. The $186 million net longs turned to $180 million net shorts. Investors built both the gross longs and shorts.