Positioning
At least within the G10 space, there has been a lack of conviction behind FX positioning of late. In line with the elevated levels of volatility that we have been seeing, the volume of contracts outstanding and positioning within major FX pairings has been underwhelming. However, as central banks now begin to curtail their hiking cycles whilst inflation continues to moderate, outright positioning within currency pairs may begin the rise once again. When we talk about positioning, we refer to reported exposures against currency pairs from specific financial and non-financial institutions that would profit from a rise or fall in a given financial instrument.
Inflation statistics within the US began to come under control ahead most other developed central banks. In response to this the Fed stopped its outsized 50-basis point hikes allowing Euro-Dollar to rise rapidly. During this period of time, short positions were rapidly built up against the US Dollar. However aside from this episode, positioning within the world’s largest and most liquid currency pair has remained overwhelmingly flat. That is of course until now. One of the groups of financial institutions that reports FX positioning to the market is that of ‘leveraged investors’. This group of reporting institutions is often closely observed by the wider market given their ability to shift direction rapidly and solely pursue profit. The most recent data shows us that leveraged FX speculators are positioned for a move higher once again, with EURUSD expected to consolidate above 1.10.
This positioning is consistent with a view that US rates are topping out and coincides with many analyst and bank calls that governmental debt is now a strong buy. To confirm this view, US data will need to continue to be favourable giving little reason for investors to expect a resurgence in inflation. This dynamic adds significance to the US inflation data due in the form of CPI on Thursday and PPI on Friday. Should data continue to point towards a soft landing for US inflation, interest and growth rates, further weight could be added to current positioning allowing a rise higher in EURUSD to be realised.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – Porsche
Humphrey Percy
Fri 14 Mar 2025
Porsche Yet another auto company with falling sales. Only in the case of Porsche, its sales have fallen only 1% in 2024 on the previous year. However margins have fallen considerably with gross operating profit down from EUR 7.3 billion in 2023 to EUR 5.3 billion in 2024. This is enough of a wake up […]
Daily Brief – US Recession
Humphrey Percy
Wed 12 Mar 2025
US Recession In the past year the USA and indeed the whole world has been watching and hoping that the Federal reserve will succeed in bringing down inflation without causing a recession. That is the Goldilocks scenario which is described as a soft landing. Looking at the S&P 500 which has declined 7% since January […]
Daily Brief – Autonomy and Atlanticism
Humphrey Percy
Mon 10 Mar 2025
Autonomy and Atlanticism These are the stark choices that European leaders seem to be advocating to their still to catch up partially in denial electorates. At one extreme is French President Macron who is banging the drum for European self reliance and autonomy from US protection having concluded that the USA cannot be relied on. […]
