USD Net Longs Rise for the First Time in Four Weeks

Investors increased US dollar net long bets for the first time in four weeks from $21.61 to $22.07 billion according to the report of the Commodity Futures Trading Commission (CFTC) covering data up to September 8. The nonfarm payrolls report showed US economy added 173,000 jobs in August, lower than the expected 223,000 increase, but unemployment fell 0.1% to 5.1% and wages rose more than expected. After market turmoil of previous two weeks the jobs report indicated US labor market improved further, which is what Federal Reserve policy makers had mentioned as a condition for starting interest rate normalization together with inflation rising toward the 2% target rate. Although uncertainty surrounding slowing global growth and its adverse effect on inflation will likely be an important factor in determining the timing of the first interest rate hike in a decade, the jobs report attested to US economy’s underlying strength and supported the case for hiking the interest rates sooner than later, increasing bullish expectations for the dollar. As volatility in global markets remained high and investors continued to reduce their exposure to emerging markets the yen and euro short positions continued to fall. As is evident from the Sentiment table, the sentiment improved for all major currencies except for the euro and all major currencies are still held net short against the dollar.

The euro sentiment deteriorated after a pause in a build in net short euro position last week. The net short bets in euro widened $1.78bn to $11.3bn, with euro’s share rising to about 50% of long US dollar position. The euro net short position rose as investors increased both gross longs and gross shorts.

The Japanese yen sentiment continued to improve as investors covered shorts and reduced gross long contracts with net short position narrowing $0.93bn to just $0.69bn, less than half of previous week’s net short position. The Japanese yen now holds the smallest net short bets against the US dollar among the major currencies. The negative dynamic of the previous week continued for the British Pound with net short position widening $0.6bn to $1.6bn as investors cut gross longs in British Pound and increased gross shorts.

The Canadian dollar sentiment improved for the third week in a row with the net short position narrowing $0.4bn to $3.6bn. Investors increased gross longs as they covered shorts. The Australian dollar sentiment continued to improve with net short bets narrowing by $0.1bn to $3.7bn as investors cut both gross longs and gross shorts. Swiss franc sentiment also continued to improve with the net short position narrowing $0.22bn to $0.88bn. Investors increased gross longs and covered shorts.