The latest IMM data covers the week from 20 October to 27 October 2015. As the IMM positioning report is published three days after the point of data collection there is always some degree of lag related to the release. However, this report is more outdated than usual as the report doesnt cover the monetary policy meetings of the FOMC, the Reserve Bank of New Zealand and the Bank of Japan (BoJ).
Having said that, the IMM positioning data does show how speculators considerably added to their bearish EUR bets post the October ECB meeting where Draghi surprised markets with very dovish rhetoric. Add to this the significant bearish JPY builds (see paragraph below) last week which contributed to returning aggregate bullish USD bets to historically stretched long territory (page 2) . Notably, we expect the level to have become even more stretched as the FOMC's hawkish tone is likely to have attracted even more USD bulls post the report's coverage period. Fundamentally, however, we still regard EUR/USD downside potential to be limited from here, as stretched speculative positioning, in our view, has been a contributing factor in diminishing the EUR/USD sensitivity to relative rates. Over the coming months we see some further downside to the EUR/USD from relative rates as the first Fed hike edges closer but, in the medium term, we stick to our call that strong euro area fundamentals will take over from relative rates and push EUR/USD higher. We target the cross at 1.08 in 3M, 1.12 in 6M and 1.20 in 12M.
The IMM report also shows how investors significantly added to their bearish JPY bets ahead of the 30 October BoJ meeting - as we now know Governor Kuroda did not ease monetary policy further (see Flash Comment Japan - BoJ unchanged and sees no need for more easing , 30 October). In our view, the updated stance from the BoJ suggests the bar for additional easing is 'very high' and we now expect the BoJ to continue its current QE programme with an annual target of JPY80trn until 2017. We have lowered our USD/JPY forecasts slightly, as the prospects of additional BoJ easing has declined and now target USD/JPY at 121 in 1M, 122 in 3M and 123 in 6-12M. In the short term, we expect US data releases to be directional for the cross and for this reason we expect volatility to pick up.
In commodities, speculators extensively reduced their long oil bets sending positioning in the black gold to the 7th percentile, which, in absolute terms, is close to neutral and, in a historical perspective, the least bullish level since October 2012.
To Read the Entire Report Please Click on the pdf File Below