Major political upheaval is underway in Saudi Arabia after dozens of top officials were arrested on Saturday along with a series of other events that are unlikely to be a coincidence. The Canadian dollar was the top performer last week, while the pound lagged. CFTC positioning showed a shift against commodity currencies.
Thirty-two year Prince Mohammed bin Salman continues to tighten his grip following his rise to Crown Prince in June. A series of arrests on Saturday, ostensibly for corruption, threaten major turmoil in the Kingdom. The arrests included 11 senior princes, a former finance minister and Prince al-Waleed bin Talal, who is the richest man in the Arab world and the largest shareholder of Citigroup (NYSE:C). The head of the National Guard was also removed.
Also on Saturday, a missile was shot down near Riyadh while on Sunday a helicopter carrying Mansour bin Muqrin crashed. His father had been in-line to succeed King Salman until 2015.
This all comes just a week after Trump's son-in-law Jared Kushner made an unannounced trip to Saudi Arabia and on Saturday Trump tweeted, asking Aramco to launch its IPO in New York. Lebanese PM Hariri's announced resignation on Friday on the grounds that it is no longer safe to remain in the post may be related to the Saudi equation as the Kingdom has long served as a safe haven to the PM and his family.
We struggle to believe this is all a coincidence but what comes next is equally opaque. The turmoil could be followed by assassinations and internal strife or Bin Salman could successfully tighten his grip on all the levers of power. For now, the present is developing quickly and the future highly uncertain.
Domestic market signals may also be tough to interpret. Saudi stocks fell 2.2% early but finished up 0.3% in what was likely government buying.
On Friday, WTI crude broke out to its highest level since January 2015 and – once again – we're hard pressed to call it a coincidence. We will be watching very closely in the days ahead.
FX Commitments Of Traders
Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.
EUR +72K vs +84K prior, GBP +1vs -1K prior, GBP -119K vs -116K prior, CHF -21K vs -12K prior, CAD +58K vs +72K prior, AUD +52K vs +57K prior, NZD -6K vs +1K prior.
The head-and-shoulders pattern in EUR/USD along with the resurgent US dollar placed substantial euro positions in jeopardy. Commodity currencies also remain in a precarious position despite last week's bounce. With the BoE decision out of the way and no more hikes coming in the near term, expect to see a slow build in GBP shorts unless the Brexit rhetoric improves in the coming 6 weeks.