Dollar sentiment deteriorates again on negative data

Labor market data indicated labor market remains strong at 4.4% unemployment rate with both initial and continuing jobless claims declining. The 4.4% unemployment rate meets the definition of full employment. And mixed services and manufacturing data for May were not supportive of expectations for strong start in the second quarter: while preliminary Services PMI rose to 54 from 53.1 in April, the Manufacturing PMI declined to 52.5 from 52.8, still showing an expansion albeit at a lower pace. A reading above 50 indicates expansion. And new home sales data were weak too: new home sales fell 11.4% in April after a 5% rise in March. It should be noted though that home sales data are volatile. Investors reduced the dollar bullish bets against the background of mixed data. As is evident from the Sentiment table, sentiment improved for all major currencies except for Australian and Canadian dollars. And the euro and Australian dollar are still the two major currencies held net long against the US dollar.

The bullish euro sentiment intensified considerably as positive data pointed to continued improvement in the euro-zone economy. The second estimate of Q1 GDP showed euro-zone economy expanded 0.5% on quarter in the first three months of 2017, in line with the preliminary estimate and at the same pace as in the previous period. Unemployment rate declined in France in Q1 and the manufacturing sector expansion accelerated in Germany in May: Manufacturing PMI in Europe’s largest economy rose to 57.6 from 56.6 in April. Also Ifo indexes for Business Climate, Expectations and Current Conditions all rose in May in Germany. The net long euro position rose $3.86bn to $9.07bn. Investors built the gross longs and cut shorts by 10798 and 13443 contracts respectively. The British Pound sentiment improved despite a downward revision in Q1 GDP preliminary estimate to 0.2% on quarter from 0.3%. Retail sales and unemployment data were positive though: retail sales jumped 2.3% on month in April after 1.4% fall in March, and unemployment rate fell to 4.6% in March from 4.7% in the previous month. The net short position in British Pound narrowed $0.73bn to $1.93bn as investors increased the gross longs and covered shorts by 797 and 8331 contracts respectively. The bearish Japanese yen sentiment moderated as the economy accelerated in the first quarter with the Q1 GDP growing at 0.5% on quarter after 0.3% expansion in pervious three months. However the balance of trade surplus declined in April to 428 billion yen from 615 billion in March. The net short position in yen narrowed $0.86bn to $5.78bn. Investors reduced the gross longs and covered shorts by 43 and 8695 contracts respectively..

The Canadian dollar sentiment continued to deteriorate as headline inflation remained at 1.6% in April below the threshold 2%. A negative sales data indicated retail sales excluding vehicles went down 0.2% on month in March after showing no growth in the previous month. The net short Canadian dollar position widened $0.13bn to $7.34bn. Investors cut both the gross longs and shorts. The bullish Australian dollar sentiment moderated despite a surprise decline in unemployment to 5.7% from 5.9% in March. The net longs fell by $274 million to $197 million. Investors reduced both the gross longs and shorts. The sentiment toward the Swiss franc improved as the net shorts narrowed by $0.15bn to $2.54bn. Investors built both the gross longs and shorts.