Selling Continues in the USD

Trends in the currency futures continue uninterrupted. For the past several weeks there has been spec-buying in the so called ‘commodity currencies’ versus sales of the USD.

The buying has been most pronounced in the Canadian and Australian Dollars. The spec long C$ has grown to 45,283 contracts, and to 75,242 contracts in the Australian Dollar. In addition, the specs are piling onto the long side of the NZ$.

The biggest position in the currency markets is a short euro. Since the base currency at the CME, this then means the position is long the USD versus a short euro position. The spec short in the euro increased slightly to 171.3K contracts, up from 167.3 in the prior reporting period.

The SF is tied to the euro because of the SNB’s peg to the euro at 1.20. Consequently the specs are  heavily committed to the short side of the SF. The SF is not a big market, with the OI a shade less than 58K contracts, but specs are net short about 29.5K contracts.

We note an announcement by the CME, the largest futures clearing exchange: they are going to start clearing derivatives and futures in London next year. They claim one of their first entries into the London market will be to clear currency futures. Will the pound then be the base currency?

  • US Dollar Index: There was very little change in the DI positions for the week.  Specs remain long the DI, 42,703 contracts, down from 43,461 contracts in the previous period.  Large specs are a 5.66 to 1 long.
  • Euro (EUR/USD): Large specs added 6.4K to their net short position in the euro.  Large specs are a 4.46 ratio short.  Specs have a total net short position of 171,362 contracts, up slightly from 167,396 last week.  It is surprising to see the net short position build in a market that has been trading sideways.
  • British Pound Sterling (GBP/USD):  Specs remain short the pound, but they have reduced their net positions.  The large spec reduced his net short by 7.8K contracts and is now short less than 900 contracts. The small spec has not moved as quickly.  He remains 8.8K contracts short.  Until Friday, the pound had been gradually creeping higher.
  • Japanese Yen (JPY/USD): Again in the yen, there was very little change from the prior report.  The large spec is long the yen, and the small spec is short.  Large specs hold the bigger net position, 35% of the total market, while the small spec is short 25.9% of the total market.
  • Swiss Franc (CHF/USD):  Both the large and small specs favor the short side of the SF.  Small specs are a 2.08 ratio net short, and the large spec is a 4.07 to 1 short.  The total net spec short increased by 1K during the period.
  • Canadian Dollar (CAD/USD): The open interest grew by 15.8K as the specs continued to buy the C$.  The spec net long has grown to 45,283 contracts, up from 32,331, and flipping from a short of 1622 on the report of 06, 24.  Spreading (likely option trade) has grown to 4.6% of the expanded OI.  Much of the strength probably relates to the strong crude oil market.
  • New Zealand Dollar (NZD/USD):  The OI continues to grow in this small market as the large specs continue to buy the Kiwi.  Large specs are now a 6 to 1 long, and the small spec is a 2.4 to 1 long.
  • Australian Dollar (AUD/USD): The large specs continue to aggressive accumulate the A$.  The OI was up 14,286 in the period, and the net long of the big specs increased by 13,578 contracts.  The total spec long in the A$ is now above 75K.  Part of the interest in the A$ may be in anticipation of a stimulus plan in China. However, recent advances in real estate prices in China, and an increase in food costs may defer the stimulus.

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