Sterling extends losses following latest CFTC fund positioning data

SUMMARY

ANALYSIS

USDCAD

Dollar/CAD is nudging higher this morning after Canada reported a slightly worse than expected GDP number for the month of October (-0.1% MoM vs 0.00%).  Friday’s NY close below the 1.3150-60 level should have come as a relief for the USDCAD fund shorts, but this morning’s negative Canadian data is not going to make them feel better in our opinion.  We continue to believe that a NY close above this level will stifle the market’s attempt to start a new downtrend, and such a close would invite an upward drift to the market heading into the Christmas holiday.  Canadian markets will be closed on December 25th for Christmas and December 26th for Boxing Day.

USDCAD DAILY

USDCAD HOURLY

FEB CRUDE OIL DAILY

EURUSD

Euro/dollar continues to hug trend-line chart support in the 1.1070s this morning as traders enter holiday mode.  The weekend news flow has been light as well, giving market participants little reason to push the market out of its post-UK-election downtrend.  The leveraged funds at CME trimmed their net short EURUSD position during the week ending December 17th , but only very slightly, which tells us that they’re quite comfortable staying short here.  Not even the spike to 1.1200 on UK election night could shake them out.  European markets will be closed on December 25th for Christmas and December 26th for Boxing Day.

EURUSD DAILY

EURUSD HOURLY

FEB GOLD DAILY

GBPUSD

Sterling is taking the fund longs to the woodshed this morning after the CFTC’s latest Commitment of Traders report showed traders piling in to the long side during UK election week.  They bought GBPUSD so much so that their net short position (which they’ve held since April) almost flipped to net long.  The fact that now “a lot of people got in at the wrong time” is adding insult to injury in our opinion for those who didn’t heed some of the GBP-negative warning signs we talked about on December 13th.  

Boris Johnson’s new Brexit Withdrawal Agreement passed the UK House of Commons on Friday by a comfortable margin of 124 seats, but it indeed contained the new provision that forces the UK to conclude transition talks with the EU by the end of December 2020 (which continues to worry GBPUSD traders).  The market now sits just above trend-line chart support in the 1.2920s as trading desks start to thin out for the Christmas holidays.  UK markets will be closed on December 25th for Christmas and December 26th for Boxing Day.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

The Australian dollar is enjoying some relative strength this morning as President Trump said "We've just achieved a breakthrough on the trade deal and we will be signing it very shortly".  If we combine this with AUDUSD holding the 0.6895 chart support level into the NY close on Friday, it’s not too surprising to see the Aussie trading higher here.  We’d note that US 10yr yields and the Chinese yuan are not showing the same of level of optimism today, and so perhaps AUDUSD will now struggle at 0.6920s chart resistance heading into the Christmas holidays.  Australian markets will be closed on December 25th for Christmas and December 26th for Boxing Day.

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

The US and German 10yr bond yields struggled to break-out again on Friday, and we think this largely explains their softer tone to start the week.  Dollar/yen traders are following suit; taking the market slightly lower versus Friday’s NY close.  The leveraged funds at CME marginally trimmed their net long USDJPY position for the 2nd week in a row during the week ending December 17, and we think they should continue to heed the warning from last Thursday’s bearish outside day pattern on the daily chart.

Japanese markets will be one of the few that will remain open over the Christmas/Boxing Day holidays this week.  A slew of Japanese data will come out on Dec 26th, between approx. 7:30 and 8pmET (December Tokyo CPI + November employment, Industrial Production and Retail Sales).

USDJPY DAILY

USDJPY HOURLY

US 10YR BOND YIELD DAILY

Charts: Reuters Eikon

About the Author

Erik Bregar - Director, Head of FX Strategy

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

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