In a research note published yesterday (July 4), RBC Capital Markets suggests the move might mark an easing of the bearish dollar trend that has been a feature of the first half of 2011. The bank notes, however, that sharply improving risk sentiment towards the end of last week might already have spelt the end of the latest round of short dollar covering.
The impact of renewed risk-on indicators on dollar sentiment, including a drop in implied volatilities, will not be evident until the next weekly COT report is released, the bank says. Roughly half the decline in dollar shorts was funded by selling yen, the bank said. Yen longs fell by 19,000, hitting a four-week low of 13,623.
Elsewhere, there was a slight increase in long euro positions, with non-corporate holdings rising to 32,987, though the bank notes this wasn’t enough to erase the previous week’s decline of 20,000 contracts.
The Canadian dollar moved from a net long position to a smaller net short one for the first time since August 2010. The negative position is a small one at -1,863, though it highlights the deterioration in CAD sentiment since late April, RBC suggested.
Sterling shorts increased further, falling from -11,360 to -18,349. Australian dollar and Swiss franc long positions were also trimmed.
| USD net shorts have declined rather briskly, USD has remained rather soft |
 |
| Source: RBC Capital Markets, CFTC, Bloomberg |