The latest Commitment of Traders report, issued by the Commodity Futures Trading Commission, shows non-commercial traders net bought more than 20,000 GBP futures contracts with a notional value of more than $2 billion in the week to April 24. Positioning in GBP now stands at a net long of $0.8 billion. Bullish sentiment in sterling has been building since the Bank of England’s minutes from its April meeting pointed to a less dovish stance.
Improving sentiment in sterling was also evident in the spot market last week, with GBPUSD breaking through $1.62 – reaching an eight-month high – and EURGBP reaching two-year lows below £0.82, despite early official GDP estimates indicating the UK has re-entered recession.
Strategists say the pound’s rally might have further to run.
“The crossing from a net short to net long position is typically interpreted as a buy signal – we are sterling bulls,” says Camilla Sutton, chief currency strategist at Scotiabank.
Analysts have pointed out that EURGBP has become the short-EUR proxy trade of choice, given the resilience of EURUSD and disappointing performance from the JPY and AUD crosses.
“The UK has become a semi-safe haven for investors from the eurozone crisis, and if last week’s price action is anything to go by, the recent pattern in trade for EURGBP is unlikely to change,” says Neil Mellor, currency strategist at BNY Mellon.
A move towards through £0.80 seems likely, should the 2010 low at £0.8065 be taken out.
| GBP net positioning versus GBPUSD |
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| Source: BNP Paribas |
Despite renewed fears surrounding Italy and Spain, the EUR net short narrowed by $0.7 billion to $19 billion. Analysts have attributed the recent resilience of the euro to repatriation flows, dovish Fed policy and a reasonably strong German-growth outlook.
“Rising political, economic and market uncertainty, however, is likely to cause the recent EUR rally to fade,” says Sutton.
Elsewhere, the JPY net short was reduced by $0.3 billion to $8.5 billion. Mary Nicola, FX strategist at BNP Paribas, says a further retracement is likely, given the market’s disappointment over the Bank of Japan meeting last week, at which it signalled that much further monetary easing is unlikely.
In the commodity currencies, investors continued to favour CAD, net buying 6,200 contracts with a notional value of $0.64 billion. In AUD and NZD, investors net sold $0.28 billion and $0.2 billion respectively.
Last week’s Australian consumer price index data, at 1.6% and below the central bank’s inflation target, confirmed market expectations of a Reserve Bank of Australia rate cut tomorrow.
The CAD net long now stands at $4.5 billion – just below AUD’s $4.7 billion.