IMM data released on Friday revealed that investors for the second consecutive week reduced their short EUR positions. Non-commercial EUR positioning has consequently rebounded to the 8th percentile - the least bearish level since start October. Fundamentally, we still expect EUR/USD to edge lower towards 1.20 in 6M driven by relative growth and monetary policy divergence.
Of note is that the IMM data showed a hold in the aggressive GBP bearish builds as speculative positioning - measured as a percentage of open interest - rose for the first time in nine weeks. In a historical perspective, however, this week's move was insignificant and non-commercial GBP positioning therefore remains just above the 25th percentile. Fundamentally, we expect growth and relative monetary policy to weigh on EUR/GBP going forward and we target the cross at 0.76 in 6M. In particular, we believe that the market's pricing of the Bank of England is too dovish and not in line with our fundamental outlook for the UK economy. In this respect, the lost momentum in speculative GBP bearish builds is notable and we believe the potential for a renewed build up of long GBP positions and a change of sentiment will contribute in strengthening the GBP going forward.
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