US dollar long bets fall after Brexit 04-07-2016 by IFC Markets
US dollar net longs fell to $3.0 billion from $6.6.billion against the major currencies during the previous week, according to the report of the Commodity Futures Trading Commission (CFTC) covering data up to June 28. The decision by UK to leave the European Union increased uncertainty in global financial markets and boosted demand for haven assets including US dollar. At the same time it made the prospect of a rate hike by Federal Reserve less likely for the same reason Fed Chair Janet Yellen mentioned at her House testimony defending central bank’s cautious approach to rate hikes. She said the UK exit from the EU poses a significant risk to the US economy. After Brexit vote market participants deemed it more likely the Fed would cut the rates than increase them: the Fed fund futures prices indicated traders price in a 7.2% chance of a rate cut in July instead of a hike, according to CME Group’s FedWatch tool. Economic data during the week were mixed. Durable goods orders fell in May, pointing to weak business investment. Existing home sales grew in May but new home sales declined. Meanwhile consumer confidence in June jumped to 98 from 92.4 in May according to Conference Board, and Services PMI was steady at 51.3 while flash Manufacturing PMI rose to 51.4 from 50.7. And Q1 GDP was revised upward to 1.1%. Investors reduced bullish bets on dollar after Brexit. As is evident from the Sentiment table, sentiment improved for all major currencies. And the Japanese yen, Swiss franc and Canadian dollar remained the three currencies held net long against the US dollar.
The bearish euro sentiment was essentially unchanged after Brexit: the net short position in euro narrowed $50 million to $8.57bn. The euro net short position is still the largest net short against the dollar. The net short position in euro slipped as investors built gross longs by 20941 contracts and covered the shorts by 21529 contracts respectively. The British Pound sentiment improved surprisingly after the referendum of June 23 with the net short bets in British Pound falling by $1.2bn to $3.5 billion. The net short position in British Pound narrowed as the gross longs were increased by 1567 contracts and the shorts were covered by 7669 contracts. The bullish Japanese yen sentiment strengthened with the net long position in Japanese yen rising by $1.0bn to $7.2bn. Investors increased the gross long positions by 6095 contracts and covered shorts by 1359.
The sentiment improved for the Canadian dollar with the net longs tripling to $0.6bn as they rose by $408 million. Investors cut both the gross longs and gross shorts. The bearish sentiment toward the Australian dollar improved significantly with net short bets falling by $381 million to $141 million. Investors cut both the gross longs and shorts. The sentiment improved also for the Swiss franc with the net long position rising by $557 million to $1.38bn. Investors reduced both the gross longs and the gross shorts.