IMM traders increase net long yen position

Currency speculators increased their net long yen position to their highest in about 14 months during the trading week ending May 9, data released on Friday showed.
Speculative trading accounts in International Monetary Market futures added net yen longs totalling 18,844 contracts, from net long contracts of 2,689 the previous week, according to the Commodity Futures Trading Commission's Commitment of Traders report.
This was the highest net long position in the yen since January 2005. Being "long" a currency is effectively a bet it will strengthen, while being "short" is a bet it will weaken.
"Poor negative US sentiment and the sense that the Bank of Japan could lift interest rates soon - there was talk last week that the BoJ could go as early as June - are supporting the yen," said Richard Franulovich, senior currency strategist at Westpac Banking Corp in New York.
"Personally, I think the market is getting ahead of itself, but putting all these into the mix and I'm not at all surprised that yen positions are net long," he added.
Overall, net short dollar positions against the six major currencies extended to 164,236 contracts, compared with 137,083 contracts the week before.
Speculators, meanwhile, trimmed their net euro long positions in the latest trading week to still sizeable 72,911 contracts from 74,474 the week before.
Franulovich said euro positions are looking a bit stretched, noting there seems to be no further room to add to that exposure. However, this does not suggest that the euro is up for a correction, he said, adding that long-term accounts would still be supporting the single currency.
Speculators pared their euro bets in the latest period and yet the euro was 1.6 percent higher against the dollar from a week earlier.
"To me, this suggests that the latest rally in the euro was not really driven by specs, but by long-term players," said the Westpac analyst.
The CFTC data on speculative positioning are often used by analysts as an indicator of future market direction.
For example, extreme net short speculative positions often suggest a rebound in the currency is imminent because dealers might be uneasy about keeping such a large position open and reckon it is time to buy the currency back at cheaper levels. Similarly, extreme net long positions can suggest a currency has already appreciated a great deal and is poised for a correction lower because dealers are ready to lock in profits.