For once, the most interesting data in this week’s CFTC (FX) position report wasn’t how short everyone is of sterling, but a renewed build-up of Euro shorts. OK, in the 5-eyar chart below you can see that it’s not a huge increase, but maybe that’s part of the point too.
EUR/USD closed the week below 1.10,
in part after Boston Fed President Eric Rosengren suggested that if the
Fed were concerned about historically low 10-year yields, the
composition of the Fed’s balance sheet could be adjusted to steepen the
yield curve. Mr Rosengren did nothing to dissuade the market from the
idea that a rate hike is coming in December unless something happens to
derail a move (again) but equally, he didn’t seem very hawkish beyond
that. Mr Rosengren is helping the Treasury correction continue, adding
to the angst among Treasury holders and if the market shows a growing
Euro short, it also shows a shrinking TNote future long. But a smaller
long is still a long and the tide has turned in bond-land.
There’s plenty of data in the week ahead and the balance of risks is for higher yields, and a weaker Euro. If
you’re into Euro-gloom, Ambrose Evans-Pritchard cited this article by
Otmar Issing today, but I’m more interested in the widening yield gap,
the Treasury bear market, the psychological break below EUR/USD 1.10 and
the positioning (still a small Euro short and still a net T-Note long).
All of which suggests that we can see a move to 1.08, perhaps a little below, but positions and small relative yield moves aren’t really enough to get a move to, say, 1.00-1.04.