GBP & EUR Moves

Sterling and euro are in the news for different reasons with the former gaining on imrpoved prospects of an agreement on the Brexit bill and the latter undergoing volatility in Asian trade after German coalition talks collapsed following the Free Democratic Party’s walking out of the exploratory talks. More strikingly is the euro’s recovery of all  its 70-pip decline in London trade amid the realisation that any delayed would fail to derail the economic recovery in Germany and rest of the Eurozone.

Futures positioning showed increasingly vulnerable bets against JPY. USD/JPY opened the week near a one-month low after a slide in Treasury yields and stock markets on Friday. What’s troubling is that sentiment was bolstered a day earlier by a positive vote in the US House on tax reform. One way to look at it is that now the good news for tax reform is priced in. It faces a tougher battle in the Senate and it could be more than a month before anything is passed. The market may be reflecting that worry.

Cable also deserves a closer watch. A weekend report in the FT said Theresa May could give the greenlight to increasing the Brexit bill on Monday. That would help to break a deadlock and move the talks forward.

Ultimately, the market is far less concerned with the tab, and far more concerned with the post-Brexit trade deal. If paying €40B or even €60B is what it takes to get something like a free trade deal, then that would count as a major win for the pound. Watch for more headlines Monday.

CFTC Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by – long by +.

  • EUR +85K vs +85K prior
  • GBP -4K vs -9K prior
  • JPY -136K vs -128K prior
  • CHF -28K vs -25K prior
  • CAD +47K vs +51K prior
  • AUD +44K vs +45K prior
  • NZD -12K vs -11K prior

Yen shorts are at the most extreme since the end of 2014 but the market was caught offside by the rally Thursday. Despite all the bets on a climb in USD/JPY, the pair is close to the mid-point of the 2017 range. That’s a sign of a vulnerable market.

Ashraf Laidi
Ashraf Laidihttp://ashraflaidi.com/
Ashraf Laidi is an independent strategist and trader, founder of Intermarket Strategy Ltd and author of "Currency Trading & Intermarket Analysis". He is the former chief global strategist at City Index / FX Solutions, where he focused on foreign exchange and global macro developments pertaining to central bank policies, sovereign debt and intermarket dynamics. Ashraf had also served as Chief Strategist at CMC Markets, where he headed a global team of analysts and led seminars and trainings in four continents. His insights on currencies and commodities won him several #1 rankings with FXWeek and Reuters. Prior to CMC Markets, Laidi monitored the performance of a multi-FX portfolio at the United Nations, assessed sovereign and project investment risk with Hagler Bailly and the World Bank, and analyzed emerging market bonds at Reuters. Laidi also created the first 24-hour currency web site for traders and researchers alike on the eve of the creation of the euro. Laidi's analysis of currency markets stand out based on his distinct style in bridging the fundamental and technical aspects of the markets. Laidi regularly appears on CNBC TV (US, Europe, Arabia and Asia/Pacific), Bloomberg TV (US, Asia/Pacific, France and Spain), BNN, PBSs Nightly Business Report, and BBC. His insights also appear in the Financial Times, the Wall Street Journal and Barrons. He has given numerous interviews and lectures in Arabic, French, and to audiences spanning from Canada, Central America and Asia/Pacific.

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