Negative sterling sentiment remains in place

Danske Research Team from Danske Bank A/S at 10/12/09

 

The latest IMM data covers the week from 22 to 29 September. Negative sterling sentiment persisting in the market combined with a continued decline in GBP/USD coincided with speculative investors adding further to net short GBP positions. GBP/USD broke lower in the week and several key support levels were taken out on the way down to a 1.5772 low. Net short GBP positions stand at almost 50% of open interest, reflecting that speculative flows have catalysed the GBP sell-off, but also that GBP could gain significantly from a change in sentiment, as shorts look somewhat crowded. Speculative investors scaled down USD shorts somewhat prior to the publication of US non-farm payrolls data last Friday. However, while some of these positions have been converted into GBP shorts, the chart to the right indicates that the reduction in USD shorts has largely been due to a reduction in overall open interest – i.e. positions being closed down. Driven by a deteriorating risk sentiment and a drop in the oil price, USD/CAD moved higher and even tested 1.10. This led to a reduction in long CAD positions and while AUD and NZD longs were also scaled down slightly, CAD longs proved most vulnerable. Overall IMM positions still remain very polarised with speculative investors crowding together on a one-sided bet on a NZD and AUD appreciation and on a continued decline in GBP/USD.