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Foreign Exchange

IMM: JPY longs capitulate; AUD net long moderates

The net short position in the Japanese yen has increased markedly as currency traders on the CME continue to abandon long positions.

The latest Commitment of Traders report, issued by the CFTC, shows that the increase in the JPY net short came solely from the closing of JPY longs, as short positions remained largely unchanged. “This implies that this week’s change in the yen position has not been due to an acceleration of bearish yen sentiment,” says Camilla Sutton, currency strategist at Scotiabank.

From February 28 to March 6, traders closed more than 18,000 long contracts, bringing the net short to almost 20,000 contracts with a notional value of close to $3 billion.

 Source: BNP Paribas

Meanwhile, leverage funds added to positions on both sides in EUR. The net short now stands at 116,000 contracts with a notional value of $19 billion. The EUR net short remains the highest of any currency traded on the exchange, but during the past six weeks non-commercial traders have generally been reducing shorts in EUR. At its peak on January 24, non-commercial traders held 174,000 short contracts – this week the position is at 123,000.

Aside from the yen, the biggest weekly change in positioning was in the Australian dollar, whose net long reduced by more than 16,000 contracts and a corresponding notional value of $1.9 billion.

Excluding the US dollar, the net long in AUD is still the largest of any currency traded on the CME, standing at 61,000 contracts with a notional value of $6.5 billion.

The combination of the change in AUD and JPY suggests there was little build up in carry trade positions (long AUDJPY) during the week, though this might soon start to change.

“Now that 10 central bank decisions have been executed, progress on Greece is behind us and volatility remains low, we would expect this trade to regain momentum next week,” says Sutton.

 Source: BNP Paribas

Another interesting development over recent weeks has been the rising interest for trading the Australian dollar. While USDJPY is traditionally considered the second-most traded currency pair after EURUSD, CME data during the past few weeks shows there has been much greater interest in AUD contracts than JPY contracts.

This week’s report was no exception, with open interest in AUD – the sum of active long and short contracts – held by non-commercial traders rising to a record 164,000, with a notional equivalent of $17 billion. By comparison, open interest in JPY was considerably lower at $12.8 billion.

Last week the CME also reported that open interest in all currency products reached a record high, with a notional value of $237 billion.

 Source: Scotiabank
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