IMM data released last Friday revealed that investors added net-long USD positions in the week to 30 September. The move is notable for three reasons. First, it reflects speculations of strong non-farm payrolls on 3 October, which we indeed did get. Secondly, it sent non-commercial USD positioning to a level just below the 100th percentile - the most bullish level since May 2013. Finally, this week's report showed a more general increase in bullish USD builds (see page 2) sending all but GBP and NZD positioning to absolute short territory.
Despite the general USD bullish builds, investors slightly reduced their net short EUR positioning ahead of the ECB meeting on 2 October. Notably, non-commercial EUR positioning remains very stretched short suggesting a high sensitivity of EUR/USD to the upside. Fundamentally, we still expect EUR/USD to gradually edge lower driven by relative growth, relative monetary policy together with USD's role as an asset currency and the EUR's status as a preferred funding currency. We have, therefore, lowered our EUR/USD forecasts to 1.25 on 1M, 1.22 on 3M, 1.20 on 6M and 1.23 on 12M.
Interestingly, despite the news that RBNZ returned to the FX market in August actively trying to weaken NZD, non-commercial positioning remains (marginally) absolute long. This suggests that NZD remains vulnerable to the downside.
In commodities, speculators added net short positions in copper for the fifth consecutive week sending speculative copper positioning to historically stretched levels. The consistent bearish builds in copper reflect increased worries of slowdown in China and suggest a high sensitivity of the copper price to the upside. Notably, non-commercial positioning in Brent crude remains stretched long reflecting speculations of a coming rise in the price of the black gold from the current lows.
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