Sterling and euro are in the news for different reasons with the former gaining on improved prospects of an agreement on the Brexit bill and the latter undergoing volatility in Asian trade after German coalition talks collapsed following the Free Democratic Party's walking out of the exploratory talks. More strikingly is the euro's recovery of all its 70-pip decline in London trade amid the realisation that any delayed would fail to derail the economic recovery in Germany and rest of the Eurozone. A new Premium Insights trade/note on the euro will be issued later today.
Futures positioning showed increasingly vulnerable bets against JPY. USD/JPY opened the week near a one-month low after a slide in Treasury yields and stock markets on Friday. What's troubling is that sentiment was bolstered a day earlier by a positive vote in the US House on tax reform. One way to look at it is that now the good news for tax reform is priced in. It faces a tougher battle in the Senate and it could be more than a month before anything is passed. The market may be reflecting that worry.
Cable also deserves a closer watch. A weekend report in the FT said Theresa May could give the greenlight to increasing the Brexit bill on Monday. That would help to break a deadlock and move the talks forward.
Ultimately, the market is far less concerned with the tab, and far more concerned with the post-Brexit trade deal. If paying €40B or even €60B is what it takes to get something like a free trade deal, then that would count as a major win for the pound. Watch for more headlines Monday.
CFTC Commitments of Traders
Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.
EUR +85K vs +85K prior GBP -4K vs -9K prior JPY -136K vs -128K prior CHF -28K vs -25K prior CAD +47K vs +51K prior AUD +44K vs +45K prior NZD -12K vs -11K prior
Yen shorts are at the most extreme since the end of 2014 but the market was caught offside by the rally Thursday. Despite all the bets on a climb in USD/JPY, the pair is close to the mid-point of the 2017 range. That's a sign of a vulnerable market.