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Foreign Exchange

Surprise BoJ move sees JPY net long halved on CME

The CFTC’s latest positioning report shows the largest weekly wave of JPY selling on the CME since November, as the market cut back long positions in response to the Bank of Japan’s surprise expansion of its asset purchase programme.

The JPY net long position fell from almost $9 billion on February 7 to $4.7 billion as of February 14. Since the end of the reporting period and release of the last IMM report, USDJPY has rallied more than 4%. Analysts say JPY weakness is likely to remain, with BoJ governor Masaaki Shirakawa suggesting monetary policy easing will continue until its new 1% inflation target is reached. Japan also reported a widening trade deficit on Monday, with the worsening current account seen as an important factor limiting yen strength.

Stalling developments over the Greek debt debacle also saw the EUR net short rise by more than $1 billion to $24.4 billion, partially reversing short covering seen in the previous two weeks. Optimism surrounding the single currency has subsequently risen as a bailout deal was struck on Monday, helping the EURUSD rally through $1.32.

Investors have overall added to USD longs, buying $6 billion against all currencies except CAD, NZD and MXN, leaving the market net long $13.4 billion.

The CAD was the only G10 currency bought in size against the dollar, after investors covered short positions that flipped CAD into net long territory last week. The CAD net long position now stands at $1 billion.

Positioning in other commodity currencies remains firmly net long, though saw little change week on week. The AUD remains the largest net long at $7.9 billion.

The Bank of England’s announcement of another £50 billion of quantitative easing on Feb 9, while widely expected, emboldened Sterling bears with the GBP net short close to $4 billion, the largest short position on the CME aside from EUR. Moody’s placement of the UK’s AAA rating on negative watch may have also contributed to the increased appetite for GBP shorts.

“However strong retails sales and building sentiment that the Bank of England is likely to be at the end of its QE cycle puts GBP at risk of short covering,” said Camilla Sutton, currency strategist at Scotia Bank.

 Net currency positions vs USD ($MM)

 
 Source: Scotia Bank
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