Cyclical Currencies? No Way. USD? Yes, Please

The latest IMM data covers the week from February 19 to February 26

Most cyclical currencies such as the euro and commodities were shredded last week. Investors went net short EUR again with net positioning back at levels seen around the new year, prior to the January rebound. For now, the EUR/USD will be driven by speculation on ECB action ahead of the rate meeting on Thursday. The single currency itself should be less of an issue for the ECB given the latest weakening, and we will look for limited euro downside from here. However, we acknowledge that with the current political uncertainty across the pond and ECB rate cut talk lingering, euro tailwinds have yet to gather, and we cannot rule out investors wanting to adopt more euro shorts in the near term.

JPY positioning became slightly less stretched in a week that saw the nomination of future BoJ Governor Kuroda While a shift in a much more dovish direction on the BoJ board has been under way for a while, a new governor who has forcefully argued that the BoJ has been too passive previously should allow investors to put on more shorts in the near term.

More GBP shorts were put on in a week that saw BoE minutes revive discussions of an increase in asset purchases. Sterling looks increasingly like the big loser in the FX market this yea,r and GBP short positioning has yet to reach extreme levels.

Both the AUD and CAD were discarded by speculators last week as risk appetite soured following the Italian election. However, watch out for Reserve Bank of Australia this week: the bank has recently modified its rhetoric, becoming more reluctant to ease as aggressively going forward. The Bank of Canada could remind investors this week that it remains one of the only majors looking to hike - CAD upside seen from here.

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