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Foreign Exchange

IMM positioning: USD longs slashed

Leveraged funds trading on the International Money Market cut back USD long positions dramatically earlier this month, as positive developments in Greece calmed eurozone fears – just one day before the surge in Italian yields battered sentiment again.

The latest Commitment of Traders report, issued by the CFTC, showed USD net longs fell from 71,948 contracts on November 1 to 41,692 on November 8, with the US dollar being sold against every currency barring the Canadian dollar. The market has now been net long dollars for more than two months, with aggregate long USD positioning now standing at $5.98billion.

However, the market shift into risk proved untimely, as EURUSD plunged the following day when Italian borrowing costs reached unsustainable levels, and political uncertainty within the country caused fears of a break-up of the eurozone to resurface.

“The unwinding of this past Friday’s push into risk suggests the whippy like conditions would have encouraged a move back into dollars, which will be reflected in next week’s report,” says Stewart Hall, senior currency strategist at Royal Bank of Canada. Next week’s report will cover the period from November 9 to November 15.

Unsurprisingly, euro net shorts edged lower on the back of a relatively stable week of EURUSD trading, which saw investors buying €5,800 contracts, reducing the market net short to 54,260 from 60,060 the previous week.

Elsewhere, Sterling experienced by far the strongest buying interest, with investors reducing net short GBP exposure by more than 30% over the period covered by the report. Although leveraged funds remain short Sterling, the net short in GBP declined from 47,000 on November 1 to 29,122 on November 8.

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