IMM Positioning
Dollar in favour as debt concerns return
The latest IMM data cover the week from 11 to 17 May. Speculators continued to shed long EUR positions last week and net long positioning declined close to 40% of open interest. Hence, the market was in fact less one-sided in its bets on EUR/USD prior to the sell-off seen since Friday when focus on debt in Euroland re-surfaced on talks about a soft restructuring in Greece and regional elections in Spain seeing the Socialist party ousted in many places. With markets starting to look towards the debt situation in Spain, containment to the PIG region is no longer intact. But IMM data suggest that positioning was likely less stretched going into the week than was the case e.g. ahead of the May ECB meeting.
It is also remarkable that non-commercials shifted their net stance on sterling: last week the market was long GBP but a significant unwinding of positions has sent the pound into “short” territory. The UK data flow was actually GBP supportive last week with BoE governor King writing another letter to the Chancellor to explain CPI inflation above 2% and surprisingly good retail sales. We think the market is right to be wary of UK developments though and remain confident in our call for no BoE rate hikes this year despite inflation being uncomfortably high.
Commodity currencies were also out of investors’ favour last week: CAD, AUD and NZD alike saw long positions being reduced. Indeed, while we think that the three could continue to see some upside as central banks look set to raise policy rates in Q3, valuationwise the risk-reward has been better than is now the case.
Bets on higher oil and gold prices similarly decreased. Both energy and base metals prices are now clearly suffering from the prospects of weaker growth in coming quarters.
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