Bullish bets on the US dollar trimmed - Rabobank

Analysts at Rabobank broke down the IMM Net Speculators’ Positioning as at 24 January, 2017.

Key Quotes:

"Bullish bets on the US dollar have been trimmed further as market enthusiasm about Trumponomics faded. Net USD long positions fell to 48,422 as of January 24 to almost virtually identical level as of November 15 before the market adopted a bullish view on the USD.

The USD bulls ended up disappointed with a lack of concrete details from US President Donald Trump about fiscal measures that would spur growth. Instead, the President focused on delivering the pre-election pledge to abandon a bipartisan approach to trade policy in favour of “America First.”

While our mid-term view on the US dollar is bearish, mainly on the back of the assumption that the Fed will raise rates just once this year, it could be too early to expect a sustainable reversal in the DXY Index just yet. A few constructive comments from President Trump about fiscal policies may prove sufficient to reignite demand for the US dollar in coming weeks.

Net EUR short positions dropped sharply from 66,500 to the lowest level since April 2016 of 52,348. The latest dovish comments from ECB’s Nowotny, however, reminded the market that the euro is likely to remain a funding currency for a while. Nowotny warned that removing quantitative easing program too early could hurt economic growth. Essentially, the ECB will continue to provide an unprecedented amount of stimulus.

After increasing in the first half of January, bearish bets against the pound decreased marginally to 63,172 from 66,242. Although GBP/USD produced an impressive rally from the 1.1986 low set on January 16 to the year-to-date high at 1.2673 on January 26, we are sceptical that it will prove sustainable as concerns about Brexit may resurface once negotiations between the UK and the EU commence. Consequently, we expect GBP/USD to fall to 1.19 in 6m.

Net short JPY positions fell to the lowest level so far this year as USD/JPY lost its upside traction and retraced to 112.60~ from the January 3 high of 118.60. For the first time this year net USD/CAD positions are positive, but only marginally at 2,519."