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Investors bullish on US dollar after nonfarm payrolls

12/12/2016

Investors increased US dollar bullish bets to $28.14 billion from $24.82 billion against the major currencies during the previous week, according to the report of the Commodity Futures Trading Commission (CFTC) covering data up to December 6. Data during the week did little to change the optimistic view of investors on improving US economic growth, with comments of Federal Reserve policy makers boosting expectations Federal Reserve will hike interest rates at December meeting. The Institute for Supply Management reported the Manufacturing PMI rose to 53.29 in November from 51.9 in October, and Non-Manufacturing PMI jumped to 57.2 from 54.8 while Markit’s final Composite PMI recorded no change at 54.9. Readings above 50 indicate expansion.

Factory orders jumped to 2.7% in October in line with higher durable goods orders reported previously. Construction spending grew 0.5% in October compared to no change in previous month. The nonfarm payroll report, though not particularly impressive, was also positive reinforcing expectations labor market data will give no reason for policy makers to put off the rate hike. The nonfarm payroll employment in the United States increased by 178000 in November, more than a downwardly revised 142000 in October. While the figure indicated continued recovery in labor market nearly at full employment as unemployment rate fell to 4.6% from 4.9% in October, the participation rate declined one tenth percentage point to 62.7% with average hourly earnings declining 0.1% after 0.4% growth in October. And though the core personal consumption expenditure index remained unchanged at 1.7% over year with the PCE index rising to 1.4% from 1.2% in October, investors anticipate Federal Reserve will hike rates on December 14 with fed funds futures pricing in higher than 90% probability of a rate hike according to the CME Group’s FedWatch tool. Investors increased the dollar bullish bets to the highest since early January. As is evident from the Sentiment table, sentiment improved for the euro and Canadian dollar. And the Australian dollar is still the only major currency held net long against the US dollar as intensified deterioration in Japanese yen sentiment increased sharply the yen net short position.

The euro sentiment improved ahead of the European Central Bank policy meeting as the net short euro position narrowed by $0.52bn to $15.35bn. Investors cut considerably both the gross longs and shorts by 12718 and 17402 contracts respectively. The British Pound sentiment deteriorated marginally with Pound net shorts increasing by $20 million to $6.12 billion. The net short position in British Pound widened as investors reduced both the gross longs and covered shorts by 7367 and 8534 contracts respectively. The Japanese yen sentiment turned definitely bearish with the net short position in Japanese yen widening to $3.7bn from just $30 million in previous week. Investors increased both the gross longs and shorts by 2243 and 35911 contracts respectively.

The Canadian dollar improved marginally with the net shorts falling by $30 million to $1.37bn against the dollar. Investors cut both the gross longs and shorts. The bullish sentiment further deteriorated for the Australian dollar with net longs falling by $12 million to $1.56bn. Investors cut the gross longs and covered shorts. The sentiment toward the Swiss franc continued to deteriorate at roughly previous week’s pace with the net shorts widening by $136 million to $3.1bn. Investors cut both the gross longs and shorts.


CFTC Sentiment vs Exchange Rate

December 06 2016BiasEx RateTrendPosition $ mlnWeekly Change
CADbearishpositive-136831
AUDbullishpositive1556-12
EURbearishpositive-15346523
GBPbearishpositive-6119-20
CHFbearishpositive-3145-138
JPYbearishnegative-3721-3691
  Total-28142 

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