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CFTC commitments of traders: Minor wiggles in speculative positions this week

  
Analysis, Forex

Weekly Forex futures net noncommercial positioning data for the week ending May 28, 2019

  • EUR short 100K vs 101K short last week. Shorts trimmed by 1K
  • GBP short 32K vs 26K short last week. Shorts increased by 6K
  • JPY short 55K vs 55K short last week. Unchanged
  • CHF short 35k vs 37k short last week. Shorts trimmed by 2K
  • AUD short 66k vs 66k short last week. Unchanged
  • NZD short 16K vs 11K short last week. Shorts increased by 5K
  • CAD short 39K vs 42K short last week.  Shorts trimmed by 3K
  • Prior report

Minor wiggles in positions this week although the GBP shorts increased by an additional 6K after increasing 23K last week.  AUD shorts remain healthy on expectations of cut(s) in rates.  The largest position remains the EUR as speculators don’t like the prospects for the common currency.

Weekly Forex futures net noncommercial positioning data for the week ending May 28, 2019

Dollar retreats on the session despite risk-off sentiment

  
Analysis, Forex

EUR/USD hits a session high of 1.1154 as the greenback softens

EUR/USD H1 31-05

What’s telling about the move here is that markets are calling into question the dollar’s allure as a haven currency amid the risk-off mood. In theory, the greenback should gain on soggy markets but there are reasons for traders to be more cautious this time around.
As mentioned earlier this week, the current situation may not warrant a straightforward dollar rise despite markets having been down this road before. There are considerable differences between the circumstances last year and this year.
What stands out to me is that Trump’s tariffs will eventually take a toll on US corporate earnings as profits hurt due to cost of goods rising and that in turn will eat at consumer demand and also at the US economy in the bigger picture.
US Q2 economic projections have already been slashed rather significantly over the past few weeks and with US equities also selling off (flows perhaps moving out of the US), markets are potentially at a crossroads now.
The question being: Is the global trade war involving the US bad for the dollar or is the US strong enough to brush aside these worries i.e. dollar being the best of a bad bunch?

Watch out for euro short covering in June – SocGen

  
Analysis, Forex

Don’t be too surprised, SocGen says

Societe Generale Research discusses EUR/USD tactical outlook and sees a scope for a tactical dip below 1.11 followed by a bounce on short-covering.

“When the US economic slowdown gathers enough momentum, we will see a further inversion, a further fall in long yields around the world and a stronger yen across the board.

We might even shake EUR/USD out of its torpor and away from the pattern of tiny ranges and marginal new lows followed by tepid bounces. But that won’t happen today. If we end May with a dip below 1.11 followed by short-covering, don’t be too surprised,” SocGen notes.

Bund futures: set to print all time highs

  
Analysis, Forex

Yesterday Bund futures rose above 168, which is close to the all time high seen in June 2016 of 168.86 and it is also close to the R3 pivot point on the daily chart. There is a number of factors likely to keep pushing on Bund futures:

  1. Germany: Angela Merkel is making her domestic presence felt as she acts to steady the ship. This means that sensible fiscal foundations will stay for the next couple of years.  Merkel has resolved to stay out her current term providing stability.
  2. Italy: the Italian Deputy Prime Minister Salvini is spoiling for a fight with the EU again. Salvini said that the European Commission could impose a €3bln fine on Italy for breaking EU fiscal rules. Other reports note that the Commission is ready to start disciplinary actions against Italy on June 05. Matteo Salvini said, ‘let’s see if we get this letter where theuy give us a fine for debt accumulated over the past and tell us to pay 3 billion euros’. Salvini’s party was very successful in the European elections and he pledged to, ‘use all his energies’ to fight European fiscal rules. He is in a bullish mood.
  3. EU: Senior European Jobs are up for change, including the name of Mario Draghi’s successor,  and this is set to carry on until the end of June.

All of the above making Bund futures a buy from support.

More on the US currency manipulation watch list – China

  
Analysis, Forex
OK, Here is a summary of comments from the report on China (bolding mine):
  • Pursuant to the 2015 Act, Treasury finds that no major trading partner met all three criteria in the current reporting period based on the most recent available data. 
  • Eight major trading partners, however, met two of the three criteria for enhanced analysis under the 2015 Act in this Report or in the October 2018 Report. 
  • Additionally, one major trading partner, China, constitutes a disproportionate share of the overall U.S. trade deficit. 
  • These nine economies – China, Japan, Korea, Germany, Italy, Ireland, Singapore, Malaysia, and Vietnam – constitute Treasury’s Monitoring List. 
  • China has met one of the three criteria in every Report since the October 2016 Report, having a significant bilateral trade surplus with the United States, with this surplus accounting for a disproportionate share of the overall U.S. trade deficit. 
  • Notwithstanding the welcome decline in the scale and persistence of foreign exchange intervention among many major U.S. trading partners in recent years, the Administration remains deeply concerned by the very large trade imbalances in the global economy. The U.S. trade deficit widened further in 2018, and bilateral trade deficits with several major trading partners, particularly China, remain extremely large. The United States is committed to working towards a fairer and more reciprocal trading relationship with China. 
  • Further, global growth is neither sufficiently strong nor balanced. Very large trade and current account surpluses have persisted in several major economies for many years. These imbalances pose risks to future growth, risks which are intensified by the persistence of imbalances. Treasury will continue to press major U.S. trading partners that have maintained large and persistent external surpluses to support stronger and more balanced global growth by reorienting macroeconomic policies to support stronger domestic demand growth, while durably avoiding foreign exchange and trade policies that facilitate unfair competitive advantage.

More on the US currency manipulation watch list – Japan

  
Analysis, Forex
On Japan, the summary remarks from the treasury report:
  • Japan and Germany have met two of the three criteria in every Report since the April 2016 Report (the initial Report based on the 2015 Act), having material current account surpluses combined with significant bilateral trade surpluses with the United States.
For background, the criteria the Treasury use (this in brief):
Criterion (1) – Significant bilateral trade surplus with the United States
  • Treasury assesses that economies with a bilateral goods surplus of at least $20 billion (roughly 0.1 percent of U.S. GDP) have a “significant” surplus.
Criterion (2) – Material current account surplus
  • Treasury assesses current account surpluses in excess of 2 percent of GDP to be “material” for the purposes of enhanced analysis. 
Criterion (3) – Persistent, one-sided intervention: 
Treasury assesses net purchases of foreign currency, conducted repeatedly, totaling in excess of 2 percent of an economy’s GDP over a period of 12 months to be persistent, onesided intervention.
And;
Pursuant to the 2015 Act, Treasury finds that no major trading partner met all three criteria in the current reporting period based on the most recent available data. Eight major trading partners, however, met two of the three criteria for enhanced analysis under the 2015 Act in this Report or in the October 2018 Report. Additionally, one major trading partner, China, constitutes a disproportionate share of the overall U.S. trade deficit. These nine economies – China, Japan, Korea, Germany, Italy, Ireland, Singapore, Malaysia, and Vietnam – constitute Treasury’s Monitoring List.
—-
OK, Japan escapes being labelled a manipulator. Chill out on the yen on this front at least.

FOREX : AUD/USD forecasts from 2 banks, 0.68 tipped by both

  
Analysis, Forex

Scanning some of the projections for the Australian dollar issued over past days.

Via CBA and Westpac. neither are overly bearish on the AUD.
Westpac, in summary:
On what sent the AUD lower:
  • weak Q1 CPI …, stoked RBA easing expectations
  • rise in the unemployment rate in April appeared to seal the case for RBA action
WPAC note the limited follow-through below 0.6900
Support for AUD from:
  • commodity price basket has rebounded sharply since early April
Ahead:
  • A$ rallies should be capped by RBA rate cuts in June and August and by the deterioration in US-China trade relations
  • but with OIS markets already priced for a sub-1% cash rate by 2020, we see AUD/USD only down to 0.68 by September
CBA:
  • expect AUD to fall towards 0.68 by the end of September
  • expect the RBA to cut the cash rate by 25bps  at the june June meeting (next week, Tuesday June 4)
Similar to Westpac CBA reason the downside for the AUD is limited by the market already pricing the rate cut
  • CBA see another RBA cut in August
CBA point out positives for the economy (and AUD):
  • The APRA proposing easing bank lending restrictions – will help stabilise Australian house prices
  • Election out the way reduces political uncertainty, positive for capex and job growth
  • US Fed likely to cut rates this year and next (likely US dollar fall, AUD to benefit)

Euro dips on brewing EU-Italy budget battle

  
Analysis, Forex

Euro edges lower

Euro edges lower
If you’re wondering what the latest dip down in the euro is about, it’s because the EU is considering starting disciplinary procedures against Italy for its failure to meet budget rules, according to a Bloomberg report.
This goes back to the extended battle over the budget in 2018 and the inability of Italy to grow its way out of high spending.
The report cites unnamed officials and says the next steps could come on June 5 and start a process that could lead to a 3.5 billion euro fine. That would be an unprecedented move and would need to be approved by EU finance ministers after a months-long process.
In short, it’s not going to happen but the process could inflame tensions and stoke more populism in Italy.
What’s especially notable is that this moves comes after a resounding win for Salvini in EU elections. With that, coalition partner 5-Star has said it will support his push for tax cuts — something that could further undermine the budget.

An Update :Dollar Index ,INR ,EURO ,JPY ,AUD ,GBP ,CAD ,CRUDE ,SPX ,NASDAQ Composite ,Shanghai Composite -Anirudh Sethi

  
Analysis, Crude, Forex, US Market
After pushing higher in the first part of last week, the US dollar reversed lower and saw follow-through selling ahead of the weekend.  The reversal saw all the major currencies but the British pound gain on the greenback last week. Although the ineptitude of Prime Minister May has weighed on sterling, the immediate reaction to her departure saw the pound fall as the risk of a no-deal exit rose.
As we discuss below, the technical condition warns that the corrective forces could continue through the week ahead.  Looking ahead of the macro calendar, this could persist until the run-up to the ECB meeting on June 6 and US employment data the following day.  Of course, these things are subject to change and fine-tuning.  The dollar remains supported by wide interest rate differentials and an economy that still appears stronger than Japan and most of Europe.  It strikes us that this is a short-covering correction for the major currencies rather than a turn in the underlying trend.
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