FX Positioning: Dollar Longs Rose Into The Fed Meeting

CFTC data shows that dollar longs continued to rise heading into the August FOMC, which supports our view that the dollar’s negative reaction to the meeting may have at least partly been a position-squaring event. The Canadian and New Zealand dollars saw the largest short squeezes in the week ending July 27.

Top view of various dollar banknotes placed on flag of United States of America


USD: Bullish sentiment on the dollar continued to rise

CFTC data on G10 FX positioning shows that the aggregate dollar positioning continued to rise into net-long territory in the week ending 27 July. The gauge of net-long USD (UUP) positions vs reported G10 currencies (i.e. G9 excluding Norway's krone and Sweden's krona), moved from being worth 1.5% of open interest to 3.0% of open interest in that week, as the dollar’s positioning gained ground against all G10 currencies except for the Swiss franc where speculative positions reported by the CFTC are often detached from spot market dynamics.

Sources: CFTC, Macrobond, ING

This move in the dollar’s positioning is an indication of how markets continued to increase their bullish sentiment on the greenback, thanks to a less supportive risk environment with growing doubts about the global recovery (which prompted an unwinding of reflationary trades) and to the Fed moving closer to normalizing monetary policy. We think that the rise in USD net longs also endorses our view that the drop in the currency after the FOMC rate announcement and Jerome Powell’s press conference on 28 July (so not covered by the data) can at least be partly considered as a position-squaring/profit-taking event, as speculators who had bet on dollar strength backed by Fed tapering expectations may have taken the chance to cash in on their long-dollar positions.

This week – as per our G10 FX Week Ahead preview - we do not expect to see more dollar weakness, as the data-flow in the US should allow markets to cement their hawkish Fed views and the risk environment may struggle to fully recover due to China’s regulatory crackdown and the US retaliation.

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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