FX Positioning: Speculators keep building dollar longs

CFTC data on FX positioning show that, in the week ending 10 August, speculative investors increased their bullish exposure on the dollar. The USD aggregate net long positioning versus reported G10 currencies (i.e. G9 excluding NOK and SEK) rose to 3% of open interest. This is in line with the good performance of the greenback across the board in the week to 10 August, as markets turned increasingly cautious on the global growth outlook due to the rapid spread of the Delta variant across the world, and especially in low-vaccinated countries like most of Asia.

Unsurprisingly, and considering the ongoing re-rating of China’s growth expectations along with most of Asian countries, the AUD and NZD saw a worsening in sentiment. AUD saw a larger drop in positioning than NZD (despite starting from deeply oversold territory) in the week under analysis, likely because it is also facing other downside risks (falling iron ore prices, domestic Covid crisis). NZD received some help from good jobs data cementing expectations about an August hike by the RBNZ.

EUR/USD net positioning is now at its lowest level (+5% of open interest) since March 2020, when it was in net-short territory. Friday’s rally in the pair may be mirrored by some rebound in net long positions in the next CFTC report, but we doubt that markets will consistently build back bullish EUR/USD positions in the near term, as – even if the USD stabilises along with risk sentiment - the ECB's ultra-dovish stance should leave the EUR as unattractive from a carry perspective.

Speculative positioning on the pound jumped despite a general strengthening in USD sentiment. The data cover the 5 August Bank of England meeting and, despite the immediate GBP reaction not being meaningful in the spot market, investors likely increased their bullish GBP exposures as the BoE moved slightly closer to tapering asset purchases, lowered the level of the Bank rate that would be required to start reducing its balance sheet to 0.5%, and sounded more upbeat than expected on the growth outlook.

We may see some unwinding of those freshly-built long positions in the next CFTC positioning report, as the bullish sentiment on the pound eased last week and EUR/GBP climbed back above the 0.8500 level. This week, we see room for EUR/GBP to rejoin a downward-sloping trend below 0.8500.

Another currency that saw an improvement in its net-positioning was the Swiss franc, according to CFTC data the most overbought G10 currency. Given the volatility in the CHF positioning as reported by the CFTC, we are reluctant to read too much into this. Indeed, there was a substantial increase in bullish sentiment on CHF up until the first week of August, but we may have then seen some position-squaring last week as CHF lost some ground.