Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Head of Commodity Strategy
Summary: Speculators bought bought dollars, Japanese yen and Swiss franc as the market continued the grapple with the potential economic fallout from the coronavirus outbreak.
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.
In the week to February 4 hedge funds and other large speculators bought dollars for a third week. Global growth uncertainties created by the 2019-nCoV outbreak in China attracted buyers to dollars, Japanese yen and Swiss Francs while the euro and the commodity currencies of the Canadian and Aussie dollar bore the brunt of the selling.
Overall the dollar long against ten IMM currency futures and the Dollar Index jumped by 65% or $3.9 billion to $9.8 billion, a five-week high. The selling of euro boosted the net shorts to 75k lots, the most bearish since October while the long position in the Swiss franc at 5k lots was the most bullish since December 2016.
Despite the first reduction in five weeks the Mexican peso position totaled 165k lots and it remained the second most favored long after the Greenback.