Traders cutting their USD shorts

Covid-related move being reversed

Chart of the Day

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The CFTC Commitment of Traders report showed that traders continue to cut their net short position in the USD. There could still be a lot of this move to play out - the chart above shows we have only reversed half of the move that occurred when the pandemic hit, even though longer-term yield differentials between the US and other countries are now returning to pre-Covid levels (see chart below).

Macro

The US personal income and spending data for February showed income growth slowed to 5.0% YoY, while consumption growth fell to -0.6% YoY.

The German Ifo survey expectations component rose to 100.4 in March, leaving it consistent with GDP growth of 2% YoY.

In Brazil, growth in foreign direct investment rose to a still very weak -38.8% YoY in February.

Markets

As traders cut their shorts, the USD appreciated against most currencies last week - especially the Turkish lira after the central bank governor was replaced.

Non-commercial traders decreased their net long position in the EUR last week, though are still long the single currency compared to their short position before Covid.

That’s despite real 5-yr/5-yr yield differentials now back where they were before Covid, and then some.

It was a mixed week for equities; the S&P 500 rose by 1.6%, the Nasdaq rose by 0.9%, and the Russell 2000 fell by 2.9%.

Of the main US indices, non-commercial traders currently have the largest net long in the Russell 2000, but even there they seem to be struggling for conviction.

That is also clear when looking at longs and shorts separately - both are relatively low. Non-commercial traders' long position in S&P e-mini contracts is 35.4% below the average from the past 5 years, while their short position is 21.4% below the 5-year average.

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