Japanese Yen (JPY) in Demand, GBP Sentiment Weakens

US Dollar, EUR/USD, USD/JPY, COT Report –Analysis

Election Uncertainty Prompted Demand for USD and JPY
AUD & GBP Sentiment Eases

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Source: CFTC, DailyFX (Covers up to November 3rd, released November 6th)

Japanese Yen in Demand, GBP Sentiment Weakens – COT Report

Investor positioning changes into the US Election saw speculators reduce their bearish exposure in the US Dollar with net shorts cut by $2.5bln. This had been largely driven by the liquidation in bullish Euro bets, which had been slashed by $2.39bln as lockdowns across Europe weighed on sentiment, while safe-haven flows curbed USD losses. However, with Biden the winner of the election, these flows had likely begun to reverse amid the relief rally.

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Elsewhere, election uncertainty had also seen flows into the Japanese Yen as net longs rose by $1.22bln. However, with much of the election risk now out of the way, risks may be tilted towards a reversal in USD/JPY given that Japanese Officials are beginning to highlight there concerns with the recent Yen appreciation.

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Investors had moved back into neutral territory following a $728mln reduction in net longs. Keep in mind that the Aussie also had RBA risk, whereby the central bank cut rates to a fresh record low of 0.1% from 0.25%, while also announcing QE through purchasing bonds further down the curve (5-10yrs). NZD positioning had been left unchanged, however, with the Kiwi hovering near YTD highs, the RBNZ may look to curb its rise and thus look for a pick-up in AUDNZD.

Sentiment in the Pound had deteriorated slightly with net shorts picking up by $373mln. Brexit talks have failed to resolve key issues, namely fisheries and level playing field ahead of another soft deadline on November 15th. That said, while my base case remains that a deal will be eventually reached, currently GBP/USD level is somewhat elevated given that Brexit and COVID risks remain.