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US dollar net longs fall in latest week

Saturday, November 19, 2016 - 10:16

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Speculators reduced positive bets on the US dollar as profit taking reduced net longs after they had risen seven straight weeks, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.

[NEW YORK] Speculators reduced positive bets on the US dollar as profit taking reduced net longs after they had risen seven straight weeks, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.

The value of the US dollar's net long position dropped to US$20.87 billion in the week ended Nov 15, from US$22.36 billion the previous week.

Last week's net long US dollar position was the largest in 9-1/2 months.

The victory of US President-elect Donald Trump last week cemented a US dollar uptrend based on expectations for increased infrastructure spending that could stoke inflation and lift interest rates. A week after the US presidential election, the US dollar index has rallied nearly 7 per cent.

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But the US dollar was on a rising path months before the election, and many analysts believe that the US dollar is ripe for a pullback, at least in the near term.

"Trump's win caused a tectonic shift in the financial markets that sent bonds crashing lower, the US dollar to multi-year highs and stocks to record highs," said Kathy Lien, managing director of FX strategy, at BK Asset Management in New York.

"Pullbacks in the US dollar should remain shallow, but it has been 10 to 11 days since we've seen a meaningful sell-off in the greenback versus the euro and yen."

For US dollar/yen, Ms Lien said this is the longest stretch of gains since May 2015 and while the next major level of resistance isn't until 112 yen, a pullback is likely before that target is reached."

Japanese yen net longs, meanwhile, posted their lowest level since early June, with 20,676 contracts, data showed, with the yen a casualty of the US dollar's strong rally.

As of Friday, the greenback had recorded a two-week gain of climbed 7.3 per cent against the yen, its steepest since January 1988 and its second-strongest performance in the era of floating exchange rates.

Sterling net short contracts, on the other hand, declined in the latest period to 80,313. That was the smallest net short on sterling since late September.

While investors expect weaker growth and turbulence around talks on Britain leaving the EU to undermine the pound next year, some have begun to argue that a 20 per cent fall in the currency since last December is enough to deal with Britain's large external deficit and help rebalance the economy.

That has helped the brighten the outlook for the pound.

The Reuters calculation for the aggregate US dollar position is derived from net positions of International Monetary Market speculators in the yen, euro, sterling, Swiss franc and Canadian and Australian dollars.

REUTERS

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