IMM preview: Old data, new signals
This week's IMM FX positioning data -- delayed until Monday due to the U.S. Thanksgiving Day holiday -- should be taken with a grain of salt given the vintage of the figures when the finally arrive, though it may still be instructive about the direction of currencies.
In the Nov. 20-26 CFTC reporting period, the USD index rose 0.76% as specs built post-election trades after President-elect Donald Trump announced tariff plans that included Mexico and Canada.
Entering December traders will be squaring positions, closing books and looking to avoid the seasonal liquidity drain.
EUR/USD losses outstripped the dollar index gains again last week, falling 0.94% and testing lows beneath 1.05 as traders doubled down on expectations that the ECB will be more dovish than the Fed.
Trump's tariff-heavy policy signals have led markets to bet that U.S. inflation will remain more stubborn than otherwise, keeping rates more elevated, while any decrease in trade would support the dollar.
USD/JPY slid 0.99% in the period, with traders increasing odds for a BoJ hike in December, and Trump tariff fears bolstering the yen's safe-haven appeal among macro traders.
The reversal of recent JPY shorts helped the Japanese currency as traders became less likely to mount an assault on 160 given relative U.S.-JP rate expectations.
GBP/USD fell 0.91% in the IMM period as longs succumbed to the broad dollar buying despite a parallel UK-U.S. rate view in 2025.
The GBP long component continued to slide, which may be an opportunity to reload longs given the relatively favorable UK rate outlook, but in the current environment the dollar buyers hold the advantage.
USD/CAD was up 0.71% in the period after hitting a flash 2024 high of 1.4178 on the tariff news. It has retreated to about 1.4021, but diverging U.S.-Canada rate expectations could reward CAD shorts.
Interest rate expectations project fed funds at 4% by end-2025, with the BoE nearby and the ECB at 1.8%.
IMM METRICS
Below is my IMM metric in the left column, which is based on percent of overall positioning. EUR flipped to a short recently, which is growing quickly. One caveat: there are significant EUR long and short positions and a break higher or lower may stir activity.
My metric shows CAD significantly oversold and, thus, a CAD long would be in order. However, fundamentals dictate long USD on rates and expected Trump policies.
Note: A position of greater/less-than +/-40% is generally a signal to sell or buy and the metric is negatively correlated, so the CAD at -79% would, theoretically, signal a CAD buy, though at this time of year closing books in December might be seen as the better part of valor.
For the markets, the Trump tumult may be coming at the right time, as traders exit positions for seasonal reasons anyway. In this case, they can wait until next year for more clarity. If that's not a option, then traders may simply opt to stay nimble and take guidance from relative yields.
For more click on FXBUZ
IMM Positioning Data: https://tmsnrt.rs/4g633kO
(Edited by Burton Frierson
Paul Spirgel is a Reuters market analyst. The views expressed are his own)
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