Sterling has been dented by the risk of a no-confidence vote in Prime Minister Theresa May. Meanwhile, oil remains bid on persistent Saudi Arabian tensions, and the "old correlation" is back between yields and equities.
Article / 13 June 2016 at 6:45 GMT

COT: Brexit worries trigger flight to dollar safety

Head of Commodity Strategy / Saxo Bank
  • Continued dollar buying after jobs report quite significant
  • Heavy GBP and EUR selling only partly offset by JPY buying
  • Last week saw  biggest weekly buying of JPY since Dec15
  • Bund yields zero-bound on Brexit and ECB worries
By Ole Hansen

Hedge funds doubled their bullish dollar bets against eight IMM currency futures last week. The continued buying of dollars was quite significant considering it occurred before and not least after the very weak US job report on June 3. 

It was not just sterling on heavy Brexit selling that delivered this demand for dollars. The EUR net-short increased by 78% with traders taking the opportunity of the post NFP dollar slump to reduce longs and significantly add to existing short positions.

Speculative IMM currency positioning
 Six out of the eight IMM currency futures were sold against the dollar with JPY being the major exception. Traders added 28,016 lots or the equivalent of $3.2 billion, the biggest weekly buying of JPY since December 15.

Speculative IMM currency positioning
Short selling in EUR increased despite the weaker than expected US job report. The yield contraction in Europe led by European Central Bank and Brexit worries saw German 10-year bund yields heading towards zero. 

These development helped send yield hungry investors across the Atlantic resulting in US 10-year hitting 1.64% on Friday, the lowest since May 2013. EURJPY hit a 38-month low which may also have attracted some fresh momentum selling of EUR and buying of JPY.

Speculative positioning in IMM EUR
Brexit risks resurfaced with polls suggesting a dead heat between the two sides. Bearish sterling bets or the net-short doubled primarily due to aggressive short-selling (red line). 
Speculative positioning in IMM GBP
– Edited by Clare MacCarthy

Ole Hansen is head of commodity strategy at Saxo Bank. His Twitter account was cited by MarketWatch as one that investors should follow in 2016.

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