The latest IMM data covers the week from 6 October to 13 October 2015.
IMM positioning data released on Friday show speculators continue to unwind their bearish JPY exposure . Indeed, in eight of the past nine weeks investors have short covered their JPY positions, sending positioning from the 13th to 51st percentile. Looking at the change in overall USD positions, since the summer investors have broadly reduced their exposure to the greenback and with this week's long covering, aggregate USD positions are now back at the least bullish level since August 2014 (see page 2). In our view, this leaves upside potential in USD/JPY and, although the cross remains significantly overvalued according to our long-term PPP fair value estimate, we expect additional easing from the Bank of Japan at the 30 October meeting to weigh on the JPY near term (see FX Forecast Update: BoJ to breakaway - more easing in October , 16 October, for more details). We forecast USD/JPY at 124 in 1M.
The IMM report also shows how investors for the second consecutive week reduced their bearish EUR exposure, sending non-commercial EUR positions to the 19th percentile - the least bearish level since the start of September. Fundamentally, we see EUR/USD range bound between 1.10 and 1.16 in coming months, with a move lower as markets buy into a first Fed hike in early 2016. Notably, our not-so-aggressive call on ECB easing (a mere extension of QE) limits the EUR downside from euro area monetary policy. We think the low in EUR/USD will arrive in 3-6M and now see the cross at 1.12 in 3-6M, with the risk of the pair temporarily undershooting our forecasts.
Notably, speculators significantly reduced their bearish AUD positions last week, returning non-commercial AUD positioning to the 11th percentile - the least bearish level since mid-July. Fundamentally, this is in line with our expectations as we expect a repricing of the Reserve Bank of Australia together with speculative short covering to counter some of the AUD/USD downside potential. We target the cross at 0.71 in 1M, 0.69 in 3M and 0.68 in 6M and 12M.
In commodities, speculators added long oil positions for the first time in five weeks.
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