Column-Hedge funds’ bullish dollar view distorted by yen outlier: McGeever
By Jamie McGeever
ORLANDO, Fla. (Reuters) – Hedge funds stay bullish on the greenback, holding a web lengthy greenback place in foreign money futures markets for greater than 9 months. However take away the Japanese yen from the equation, and the image is far more blurred.
U.S. futures market knowledge present that speculators trimmed the worth of their general lengthy greenback place towards a spread of currencies for a second week, however elevated their web brief yen place to the most important in three and a half years.
Certainly, there are solely a handful of durations since Commodity Futures Buying and selling Fee (CFTC) yen futures contracts have been launched in 1986 the place funds have been extra bearish on the Japanese foreign money than they’re proper now.
The newest CFTC knowledge for the week ending April 12 present that funds elevated their web brief yen place to 111,827 contracts from the earlier week’s 103,829.
That’s the largest since October, 2018. As the next chart exhibits, it’s approaching historic ranges.
CFTC Funds’ Yen Place https://fingfx.thomsonreuters.com/gfx/mkt/egvbkenobpq/CFTCYEN2.jpg
Greenback/Yen Vs CFTC Positions https://fingfx.thomsonreuters.com/gfx/mkt/zjvqkmqylvx/CFTCYEN1.jpg
The scale of that guess towards the yen in greenback phrases is giant, however not fairly as excessive. It stands at $11.15 billion, the most important since November final 12 months and up from $10.5 billion the week earlier than.
Shopping for {dollars} and promoting yen has been the one FX commerce that speculators have gotten spectacularly proper this 12 months, because the divergence between U.S. and Japanese rates of interest and bond yields within the greenback’s favor has exploded.
The Federal Reserve is within the early levels of what’s shaping as much as be essentially the most aggressive inflation-busting cycle of rate of interest rises since 1994. The Financial institution of Japan, in the meantime, is sticking with its huge stimulus program to assist a fragile financial restoration.
US-Japan 2-12 months Yield Unfold https://fingfx.thomsonreuters.com/gfx/mkt/movanomqxpa/USJP2Y.png
The greenback made a contemporary 20-year excessive final week above 125.85 yen and on Monday it nudged 127.00 yen, lifting the broader greenback index to a two-year peak.
Japanese policymakers have voiced disquiet concerning the yen’s decline. However it might require greater than well-intentioned phrases to cease the rot.
“The prospects of a change within the yen’s depreciation development will in the end be decided by U.S.-Japan financial coverage divergence and, therefore, world inflation developments,” Barclays analyst Shinichiro Kadota wrote on Monday. Promoting stress on the yen ought to persist within the close to time period, he added.
Hedge funds’ stance on the greenback towards different currencies, nonetheless, is far more blended.
The newest CFTC knowledge present that they trimmed their bets on a stronger greenback towards a spread of six main currencies, together with the yen, to $13.22 billion from $14.136 billion. That discount was principally pushed by the euro.
Funds elevated their web lengthy euro place by 11,690 contracts to 39,060 contracts, an combination guess value $5.285 billion. That’s funds’ most bullish euro view in 5 weeks.
CFTC Greenback, Euro Positions https://fingfx.thomsonreuters.com/gfx/mkt/gkvlgkmlnpb/CFTCEUR.jpg
But it surely is not paying off. The euro final week fell to a one-year low of $1.0756 after feedback from European Central Financial institution (ECB) President Christine Lagarde have been seen as an indication that the ECB was in no rush to match the Fed in elevating rates of interest.
A rising variety of analysts are actually predicting that the euro may fall in the direction of parity with the greenback within the months forward. That is not one thing funds are positioning for.
Associated columns:
Euro FX reserve demand returns after years of neglect (Reuters, April 13)
‘Japanification’ nonetheless lurks behind hawkish Fed frenzy (Reuters, March 29)
That uncommon disaster, when the yen falls (Reuters, March 15)
(The opinions expressed listed below are these of the creator, a columnist for Reuters)
(By Jamie McGeever; Enhancing by Kenneth Maxwell)
