The latest IMM data cover the week from 14 to 21 October 2014.
IMM data released last Friday revealed a slight bearish build in speculative EUR positions. From a historical perspective, however, the move was insignificant. Hence, non-commercial EUR positioning maintains the past seven weeks' stable level around the stretched short level of the 6th-8th percentile (see page 3). Consequently, a new catalyst still seems required to drive EUR positioning further.
The report on Friday also showed that investors in the week to 21 October slashed their net JPY shorts considerably (see page 4). The move probably reflects financial market jitters and stop-losses on USD/JPY. The change in JPY positioning this week was the sole factor for reducing the aggregate USD positioning away from the historically bullish levels (see page 2). However, speculative USD positioning remains very stretched and we see a high risk of a short-term correction higher in EUR/USD - in particularly in light of yesterday's AQR and stress test results (see ECB comprehensive assessment - Capital shortfall less than expected , 27 October). Fundamentally, we still expect EUR/USD to gradually edge lower in the coming six months driven by relative growth, relative monetary policy, the USD's role as an asset currency and the EUR's role as a preferred funding currency. We target EUR/USD at 1.22 in 3M and 1.20 in 6M.
Notably, data also reveal a slowdown in bearish AUD builds (see page 6). In the past six weeks investors have consistently been adding short AUD positions sending non-commercial AUD positioning from the 75th percentile to the 6th percentile. This stretched short positioning indicates that AUD sensitivity to the upside is high. However, fundamentally we still find the AUD vulnerable and we target AUD/USD at 0.86 in 1M and 0.85 in 3M.
In commodities, non-commercial positioning in oil remained broadly unchanged at the historically neutral level of the 62nd percentile. This suggests that positioning does not pose a barrier for rapid movements higher in the oil price should new demand or supply stories support the black gold.
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