Last week’s CFTC data (for Tuesday) show Euro shorts still being cut back, yen longs increasing, sterling shorts increasing and US net dollar longs dwindling away almost to nothing. Australian, New Zealand and Canadian net non-commercial positions are now all long and the Mexican peso position. The most striking net short is not in FX at all, but in Treasuries.
The dollar isn’t going to get a meaningful lift until those burgeoning treasury shorts get some gratification. We wrote about real rates last week and the calendar is too low on data to change the picture much.
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We expect US core CPI to come in at 2.3% y/y, which is high enough to keep real rates down, but not nearly high enough to bother the the Fed. A 0.4% retail sales increase (m/m, with +0.7% ex-autos) would point to an economy trundling along reasonably well, but that too, wouldn’t change the tone of debate. So the yield-hunters will stay on top.
We, therefore, will stick to our core dollar-neutral FX trades – short NZD/CAD (oil); short GBP/NOK (not much on Brexit last week, as the focus shifted to tax, without getting any less infantile); and short EUR/RUB.
I will have another go at shorting the yen in due course, but not yet.