CFTC – sentiment diverges between EUR and GBP

Sentiment continues to diverge with building bearish EUR and JPY positions and steadily bullish AUD, NZD, MXN and GBP holdings. Our forecasts line up well with current positioning, with the exception of CAD, where a stubborn $2bn short position has yet to be covered. The market holds a net long $6.6bn USD position; but it is mainly made up of short EUR and JPY holdings and accordingly is not a broad based strong USD play but instead made up of targeted positions.

The divergence between the net long AUD position at +$2bn and the net short CAD position at $2bn is notable; particularly since both central banks hold neutral stances and have somewhat similar drivers—this could in part be a yield play but is also likely to begin to narrow. The divergence between the net short EUR position at $5.6bn and the net long GBP position at $3.7bn is also noteworthy—see top right hand chart—and highlights diverging fundamental back drops. We expect EUR/GBP to depreciate into year end. CHF sentiment is vaguely bearish and Is likely to follow EUR’s and JPY’s more bearish positioning.