USD bullish bets rose, EUR net positions fell into negative territory - Rabobank

According to the IMM net speculators’ positioning as at August 21, 2018, bullish bets on the US dollar rose for the sixteenth consecutive week to yet another year-to-date high of 34,122 in the week ending August 21.

Key Quotes

“The greenback continues to benefit from the ongoing widening in the interest rate differentials. While last week Chairman Powell indicated that the pace of monetary policy tightening will remain gradual, the Fed is on track to raise rates on two more occasions this year at the time when other major central banks are reluctant to do so. Capital outflows from emerging markets - driven by concerns about trade war between the US and China - are another factor supporting the USD. We interpret the pullback from the year-to-date high set at 96.984 in the middle of August as a correction in the DXY Index rather than the beginning of a sustainable reversal.”

“EUR net positions fell further into the negative territory. The ECB’s forward guidance that envisages first hike in the Eurozone after the summer of 2019 has been one of the main factors contributing to the bearish sentiment towards the euro. Recent turbulences in Turkey also weighed on the euro due to exposure of some Eurozone banks to Turkey, which faces the prospects of sharp slowdown in economic activity in the coming months accompanied by rising inflation after the lira collapsed.”

“GBP shorts increased further on the back of rising concerns about hard Brexit. While PM May claimed that Brexit can still be a success even if the UK leaves the EU without a deal, the market is far less optimistic about such a scenario.”

“Market participants may further reduce their CAD short positions after USD/CAD fell on the back of rising expectations that Canada may reach an agreement with the US and Mexico, which have already agreed a new trade deal.”