EUR/USD

Non-Commercials reduced their net long positions in the Euro last week selling 1k contracts to take the total position to 126k contracts. EUR upside exposure has been reduced heading into an important week for euro area politics. The upcoming Italian elections on March 4^th have the potential to cause disruption for eurozone stability with the anti-EU party the Five Star Movement currently expected to take the lead according to the latest polls. 5SM has currently declared its intention to hold a referendum on continued eurozone membership though recent comments by the party’s leader have dialed back this rhetoric.

GBP/USD

Non-Commercials reduced their net long positions in Sterling last week despite rate hike expectations, selling 7k contracts to take the total position to 8k contracts. GBP upside exposure has now been reduced by over 50% in the last few weeks as sentiment seems to have soured on the currency.  Although investors have been cutting their long positions, expectations for the BOE to raise rates in the coming months remain intact. Although the latest data showed some labor market weakness, comments from the MPC last week have strengthened this view. This week traders will be watching Manufacturing PMIs due on Thursday, which is expected to have increased over the month.

USD/JPY

Non-Commercials reduced their net short positions in Japanese Yen last week buying 7k contracts to take the total position -108k contracts. While JPY short positions have seen some covering recently, expectations for early BOJ tightening have lessened somewhat given recent JPY strength, alongside weakness in equity markets. It is worth noting, however, that the latest CPI reading came in stronger than expected on both the headline and core readings. On the data front this week, the main focus will be on Capex which is due on Thursday. It is expected to have increased along with industrial production which is due on Wednesday and is expected to have decreased.

USD/CHF

Non-Commercials reduced their net short positions in the Swiss Franc last week, buying 4k contracts to take the total position to -16k contracts. Short positions have been steadily reduced over recent weeks as the market anticipates that a shift in SNB policy is on the horizon due to the recent upwards revision to the bank’s inflation forecast for the year ahead. Equity market weakness has also seen a resumption of safe haven inflows to CHF which had been diminished over the last year.

AUD/USD

Non-Commercials increased their net long positions in the Australian Dollar last week buying 3k contracts to take the total position to 12k contracts. The recent increase in AUD long exposure belies the soft price action we saw over the last week as AUD was the weakest in the G10 bloc, despite a mild positive surprise in wage data. The current narrowing in AUD-USD yield spreads suggests that the market is looking for stronger data to price in an RBA rate hike, currently showing a less than 20% chance for a hike by August. However, given the current low level of market pricing for a rate hike, there are clear upside risks going into the coming meetings.

USD/CAD

Non-Commercials reduced their net long positions in the Canadian Dollar last week selling 9k contracts to take the total position to 23k contracts. CAD upside has been steadily reduced over the last two weeks as the market adjusts to the uncertainty surrounding NAFTA negotiations. Focus now also turns to the release of the Canadian budget which will be of note in light of recent tax cuts enacted in the US. The Canadian finance minister has already said that the budget isn’t likely to include tax cuts. Traders will also be watching Q4 GDP due this week.