John J Hardy
The UK’s exit from the European Union is causing volatility in GBP, says Saxo Bank’s head of FX strategy John Hardy, and may be the start of a squeeze on sterling pairs.
Article / 20 June 2016 at 7:41 GMT

COT: Funds sold USD into strength last week

Head of Commodity Strategy / Saxo Bank
  • Hedge funds cut bullish USD bets
  • JPY, CHF saw new longs last week
  • Sterling market swells pre-referendum

As expected, last week was no friend to sterling as the Brexit vote drew closer. 
Funds, however, also cut their bullish dollar bets. Photo: iStock
By Ole Hansen

Bullish dollar bets against eight IMM currency futures reduced despite renewed and broad-based buying of the greenback during the reporting week.  

Speculative IMM currency positioning

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Brexit worries and the Federal Open Market Committee meeting last Wednesday were two of the major themes setting the agenda for currency traders during the reporting week ending June 14. 

But despite renewed dollar strength, hedge funds nevertheless cut their bullish USD bets against eight IMM currency futures by almost 60%. 

Euro and GBP net-shorts positions were reduced while length was added to CHF and JPY.

Speculative IMM currency positioning
The EUR experienced something similar with traders taking the opportunity to buy euros during the retracement from 1.1400 to 1.1200. The net buying of 10,623 lots left the net-short reduced by 16% to 56,489 lots, or $8.1 billion equivalent.

Bullish IMM JPY bets rose strongly for a second week on the combination of longs being added and shorts reduced.

The CHF returned to a net-long with heavy buying reversing five weeks’ worth of selling
Most noticeable, however, was the near 70% jump in GBP gross-long positions during a week where cable dropped by 3% to close near $1.4100. 

This buying into weakness helped reduce the net-short by 45% to 36,661 lots or the equivalent of $3.3 billion. 

Speculative positioning in IMM GBP
Staying with sterling, the gross position reached a new record of 160,000 lots (one lot is £62,500). If we use the futures market as a proxy for the wider market, it looks like positions are anything but being reduced ahead of the UK referendum on June 23.

Gross position in IMM GBP

— Edited by Michael McKenna

Ole Hansen is head of commodity strategy at Saxo Bank

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Commitments of Traders: IMM currency futures


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