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Foreign Exchange

IMMs: dollar shorts cut again as sentiment improves

US dollar futures continued their positive trend of recent weeks with a moderate decrease in short positions, data from the CFTC’s weekly Commitment of Traders report show. Net dollar shorts fell to 119,593 from 185,700 on June 14, RBC notes in its IMM strategy update.

InterContinental Exchange’s benchmark Dollar Index, which measures dollar price action against a basket of currencies (with a higher reading indicating a stronger dollar), also rallied above 75.50, the bank notes.

The bank pins the dollar’s show of strength on continued concerns about Greece and a slump in the S&P 500 below its 200-day moving average. The dollar’s rally faded as market concerns eased, however, and the index fell below its 50-day moving average on June 21.

In its Singapore morning update (June 27), Citi notes that leveraged funds have flipped their view of the Canadian dollar, going net short for the first time since September 2010. “The fact that the position shrank and then ultimately flipped while spot was trading in a narrow 0.96 to 0.99 range [in USD/CAD] is somewhat surprising,” the bank’s strategists note.

It argues that the move makes the Canadian dollar attractive relative to other commodity currencies, as its price had held steady during a liquidation, and no longer has the same leveraged fund longs attached to it as the New Zealand and Australian dollars and the Mexican peso.

Leveraged funds remain marginally net long on the euro, the bank notes, in spite of a majority of funds adopting a bearish view (34 long, 42 short). Average long positions were much larger, however, at $307 million per account compared with $191 million for the shorts.

Leveraged players were net long $2.4 billion by notional equivalent – a fraction of the net longs seen a few months ago when the euro/US dollar rate was challenging 1.50, the note adds. The bank suggests most market players are bearish, but only carrying small short positions as they await momentum confirmation.

Meanwhile, leveraged funds were fractionally long on the pound – although the bank notes that COT data were released before Wednesday’s dovish Monetary Policy Committee minutes from the Bank of England and before spot sterling had fallen through 1.60. In all likelihood, the bank argues, funds are now net short on the pound.

Net long positions on the Swiss franc and Japanese yen remain unchanged on haven buying.

IMM net dollar longs vs. ICE Dollar Index

 Sources: RBC, CFTC, Bloomberg
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