ECONOMETER

The latest CFTC Commitment of Traders (IMM) data shows just how massive the shift in speculative USD positioning has been over recent weeks.  Net aggregate USD short positions (vs. EUR, JPY, GBP, AUD, NZD, CAD, CHF) have shifted from -172k at the beginning of December to -11k in the week ending Dec 22^nd.   This corresponds with the sharp rally in the USD versus various currencies over the same period.  

The net speculative USD position is now at its highest since May 2009 and at this pace of improvement the market will be net long USD very quickly.  However, the data also suggests that there should be a degree of cautiousness in buying the USD from here.  The USD may simply be repeating the pattern seen in 2006 and 2007 when the USD strengthened into year end only to drop sharply in the weeks after. 

If the rally in the USD has largely been due to short covering into year end then this source of support for the USD is looking exhausted. Indeed it is difficult to argue that interest rate moves have helped the USD as correlations are still low between the USD index and US rate futures. The shift in USD speculative positioning may explain the inability of the USD to make much further headway over recent days and suggests difficulty for the USD in the days ahead, with the USD index likely to struggle to get above last week’s high o 78.449.