IMM: Flight to USD reaches record highs

The latest IMM data of leveraged funds’ positioning, the category most likely to run naked directional trades, showed USD net longs leapt again, hitting 117,120 on September 26, up from 71,740 the previous week. Dollar long positions have gone up in each of the last six consecutive weeks, with the previous two weeks showing the biggest moves as risk positions, funded primarily by dollars, have been steadily unwound.

Since September 13, USD net longs rose by almost 110,000 as eurozone periphery uncertainty and the potential for default grew. Citi analysts have shown that leveraged funds are now net long USD for the second week running, with the aggregate position now totaling a record (for that side) $7.4bn.

The massive move into dollars in the last two weeks shows that market focus has shifted from concerns over the US debt ceiling and US economic slowdown to fears of a full-blown global recession and financial meltdown, according to senior currency strategist Stewart Hall at Royal Bank of Canada.

While euro net short positioning edged slightly higher to 82,473 from 79,460, the USD notional value of the net position actually fell to $7.9 billion from $8.7 billion the previous week. This was probably the result of a block of long positions that entered the market in an attempt to buy a EURUSD dip around 1.3360 according to traders at a top 5 US bank. Following heavy selling in Asia on Monday and assuming these traders have stops near their entry, around the 1.3300 mark, there may still be market vulnerability to the downside, despite IMM leveraged funds being already quite short says Citi analyst, Greg Anderson.

Positioning in all other G10 currencies was trimmed, including the safe havens of yen and Swiss franc, as investors favoured the liquidity offered by the USD. Sterling short contracts continued to accumulate, rising to a net short of 64,010 from 59,755 the previous week while Australian dollar net longs, which until recently showed surprising resilience during previous risk sell-offs, crumbled to 5,167 from 23,095. Canadian dollar shorts nearly quadrupled, going from a net short of 5,458 to 20,550, the largest net short since April 2007.   Aggregate notional USD values of euro, Australian dollar and Sterling short positions were all at record levels.