US dollar bearish bets hit three year high

Investor bets against the US dollar increased for a second week in a row: the dollar net short position rose to $4.19 billion from $1.85 billion in the previous week against the major currencies, according to the report of the Commodity Futures Trading Commission (CFTC) covering data up to April 26. Bearish bets against the dollar hit three year high as disappointing economic reports gave market participants no reason to upgrade bearish dollar outlook ahead of Federal Reserve’s policy meeting. Lower sales and inflation reports of April 13-14 were followed by soft housing market data of April 19-20 which showed that housing starts and permits fell unexpectedly in March, pointing to weakness in construction spending and construction employment. And while existing home sales report of April 20 indicated better than expected 5.1% rise in March, it was still less than the 7.3% drop in February. And the new home sales report of April 26 showed US single-family new home sales unexpectedly fell by 1.5% on the month to a seasonally adjusted annual rate of 511000 in March of 2016. The weakness in housing market and falling sales and inflation data indicate consumption will likely not provide the hoped for boost to economic growth in the first quarter. At the same time falling durable goods orders as attested by April 26 report indicated falling business investment will also provide little boost to GDP. It is not surprising that with economic reports providing little indication of improved economic growth investors turned more bearish toward the US dollar. As is evident from the Sentiment table, sentiment improved for all major currencies except for the Japanese yen and Swiss franc. And the euro and the British Pound remain the only two major currencies held net short against the US dollar.

The bearish euro sentiment continued to moderate further with the net short position in euro narrowing at faster pace than the previous week, falling by $1.0bn to $5.6bn. The euro net short position fell as investors cut both the gross shorts and gross longs by 9389 and 2139 contracts respectively. For the first time in several weeks investors cut the bullish bets on Japanese yen : the net long position in Japanese yen fell $0.7bn to $7.5bn. Investors reduced the gross long positions by 8240 contracts and cut the gross shorts by 2868. The British Pound sentiment improved for the first time in six weeks as Brexit concerns subsided: the net short position narrowed by $0.5bn to $4.4bn. Investors increased the gross longs and cut the gross longs.

The sentiment continued to improve for the Canadian dollar : net longs rose at roughly the previous week’s pace increasing by $375 million to $952 million. Investors increased the gross longs and covered shorts. The bullish sentiment toward the Australian dollar strengthened with the net long position increasing at an accelerated pace as it rose $1.1bn to $4.6bn. Here too investors increased the gross longs and cut the gross shorts. Sentiment toward the Swiss franc deteriorated marginally: the net long position declined by $33 million to $1.19 billion. Investors built both the gross longs and the gross shorts.