USD bullish bets continue to rise on monetary policy divergence

US dollar continued strengthening with net long position rising from $40.9 billion in the previous week to $44.0 billion against the major currencies according to the report of the Commodity Futures Trading Commission (CFTC) covering data up to November 24. Economic data during the week provided further support to the case of interest rate liftoff in December. The second estimate of third quarter US GDP were revised upward indicating US economy grew at higher annualized rate of 2.1% on quarter instead of the first reading of 2.0% growth. Consumer spending was the major contributor to the growth. The likelihood of interest rate hike was boosted also by the release of FOMC October meeting minutes which showed that majority of central bank policy makers supported interest rate hike in December if incoming data indicate further improvement in economy. Expectations of higher interest rate raised the demand for dollar with investors increasing their long dollar bets. As is evident from the Sentiment table, the sentiment deteriorated for all major currencies excerpt for the Australian dollar and Japanese yen and all of them are still held net short against the dollar.

The euro sentiment continued to deteriorate after European Central Bank President Draghi’s dovish comments on November 21. The net short bets in euro increased at a slower pace compared to the previous week, widening by $1.5bn to $23.3bn. Euro’s share remained at about 53% of long US dollar position with further increases in net short bets of other major currencies against the dollar. The euro net short position rose as investors increased short contracts by 8705 and reduced the long bets by 2602 contracts. The Japanese yen sentiment improved with the net short position in yen sliding to $7.8bn as it narrowed by $71 million. Investors cut the gross shorts by 5473 contracts and reduced the gross longs by 4198. The sentiment continued to deteriorate at a slower pace for British Pound also with the net short position widening $0.6bn to $3.0bn. Investors continued building gross shorts and cutting gross long contracts.

The Canadian dollar sentiment deteriorated at the same pace as in the previous week with the net short position widening $0.7bn to $2.9bn. Investors increased gross shorts and cut gross longs. The sentiment toward the Australian dollar improved with net short bets narrowing by $0.5bn to $4.1bn. Investors cut the gross shorts and increased gross longs. The bearish sentiment towards the Swiss franc intensified with the net short position widening by $0.8bn to $2.7 bn. Investors increased the gross shorts and cut gross longs.