EUR/USD

Non-Commercials reduced their net long positions last week selling 7.6k contracts to take the total position to 90k contracts. The EUR long position remains near multi-year highs ahead of the October ECB meeting this week which is attracting huge market attention. The ECB is widely expected to announce a reduction in its QE programme while rates are expected to remain unchanged.  With the announcement well signalled, the key to the market reaction will be the details with the duration of the programme expected to be extended but at a lower level after which interest rate increase are expected. The ECB’s outlook will also take on central focus as investors look to gauge the likelihood of rate rises occurring ahead of the end of asset purchases.

GBP/USD

Non-Commercials reduced their net long positions in Sterling last week selling 10k contracts to take the total position to 5k contracts. GBP positioning has seen volatile fluctuations over recent weeks as investors continue to react to opposing themes of stronger data/BOE hawkishness and Brexit/Political uncertainty. The latest CPI reading, hitting 3%, has sparked a surge in expectations for a BOE rate hike at the upcoming “Super Thursday” meeting in November following the bank’s earlier guidance that a rate rise would likely be appropriate in the coming months. Brexit negotiations continue to struggle as the UK and EU clash over the so-called “divorce bill” that the EU are requiring the UK to agree to ahead of trade talks. The fragile nature of the discussions is increasing investor speculation of the potential for the UK to withdraw from the talks which is likely to lead GBP lower.

USD/JPY

Non-Commercials reduced their net short positions in the Japanese Yen last week buying 0.1k contracts to take the total position to -101k contracts. JPY downside exposure has been building over recent weeks as the policy divergence between the BOJ and most of the other central banks in the G10 space continues to weigh on JPY. PM Abe’s landslide win in the Japanese elections over the weekend means that BOJ policy is likely to remain unchanged as Abenomics continues, pushing the Nikkei to its highest level since 1996. The key data focus this week will be CPI due on Friday which si expected to have risen over September.

USD/CHF

Non-Commercials increased their net short positions in the Swiss Franc last week selling 0.7k contracts to take the total position to -5k contracts. CHF downside exposure has been building over recent weeks as, like the BOJ, the SNB have reaffirmed their commitment to easing, creating clear policy divergence between it and the majority of other G10 central banks. For now, EUR upside is taking pressure off the SNB, and this is likely to continue to be the case provided the ECB follow through with a tapering announcement this week.

AUD/USD

Non-Commercials reduced their net long positions in the Australian Dollar selling 7k contracts to take the total position to 62k contracts. AUD long positions have stalled in momentum over recent weeks with three consecutive weeks of profit taking. The RBA have continued to reiterate a cautious stance regarding tightening with RBA governor Lowe saying that a rate rise is not likely for some time while RBA’s Harper has said that the RBA cannot rule out further rate cuts given the current economic backdrop of slow wage-growth and weakened household income. On the data front this week, main focus will be on CPI due on Wednesday and expected to have risen over the 3Q.

USD/CAD

Non-Commercials reduced their net short positions in the Canadian Dollar last week selling 1.3k contracts to take the total position to 75k contracts. Despite the adjustment, CAD long positions remain at elevated levels as traders continue to expect further BOC rate hikes this year though not at the upcoming meeting this week. The bank is likely to reiterate its data dependant stance and highlight that recent data have been on the soft side though core inflation is moving towards target. Focus will also be on how the bank addresses the NAFTA situation as the breakdown in these talks has heightened uncertainty on international trade and US fiscal policies. This month’s meeting will also provide updates GDP and output gap forecasts which should continue to highlight the bank’s optimistic outlook on the economy.