Short dollar positions have been built further

Danske Research Team from Danske Bank A/S at 11/16/09

 

The latest IMM data cover the week from 2 to 9 November. Short dollar positions have been built further in the wake of further improvement in market risk appetite and performing risky assets. Despite the failure of EUR/USD to break meaningfully above 1.50 long EUR positions have been extended – albeit remaining well below the crowded levels seen in early October. Speculative investors scaled back long positions marginally in the commodity currencies NZD, CAD and AUD, despite sustained strong performance since the late October correction in risky assets. This speaks in favour of the reduction in long positions being caused by profit-taking as the risk-reward has become less attractive. Positioning in all three currencies remain somewhat crowded though – and hence downside risks from a position squeeze significant. Short Sterling positions were scaled back somewhat following the November Bank of England meeting where the bank’s asset purchase programme was ‘only’ extended by GBP25bn – less than the consensus expectations. However, following the collection of the IMM data the BoE has published a somewhat dovish sounding inflation report, which might restrain a further scale back of short positions.