Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Head of Commodity Strategy
Summary: Speculators continue to show hesitancy in getting on board the current dollar rally. Despite seeing the Dollar Index hitting a three-year high the dollar long against ten IMM currency futures and the Dollar Index stayed well below last years peak.
Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.
Lukewarm best described speculators reaction to the continued dollar rally in the week to February 18. While buying of the Greenback extended into a fifth week the pace of long accumulation, considering the DXY hitting a three-year high, remained relatively slow. The combined long against ten IMM currency futures and the Dollar Index rose by $2.1 billion to $13.6, a two months high, but still well below the April 2019 peak at $38 billion.
The selling was, with the exception of Sterling, broad-based but not particularly aggressive. This approach was perhaps already vindicated Friday when a surprisingly weak U.S. Services PMI helped send the dollar sharply lower.
The biggest short – by far – was held in the euro at $12.4 billion equivalent. It was followed by the Japanese yen at $3.1 billion and the Aussie dollar at $2.5 billion. The reaction to the breakout in USDJPY above the downtrend from 2015 occurred on Wednesday, the day after this reporting week ended.
Leveraged funds reduced their net-short in U.S. 10-year Note futures by 28k lots to 643k lots, an 18-month low.