Currency speculators in the Chicago futures market slashed their bets against the dollar by around two thirds in the week ended March 29, data from the Commodity Futures Trading Commission showed on Friday. According to the International Monetary Market futures data from the CFTC, net short dollar positions against its six main counterparts - the euro, yen, sterling, Swiss franc, Australian and Canadian dollars - slumped to 38,710 contracts from 117,133 the week before.
The huge unwinding of short dollar positions, or bets the currency will weaken, coincided exactly with the currency's rally following the Federal Reserve's latest interest rate hike and more hawkish statement on Tuesday last week.
"It's a substantial reduction, particularly the yen position and the huge selling of Aussie," said Robert Sinche, head of global currency strategy at Bank of America in New York.
IMM traders' net short yen position totalled 30,189 contracts in the week to Tuesday, the largest net short position in over a year, while they more than halved their net long Australian dollar positions to 26,690 contracts. Overall, the net dollar short position against these six currencies is now worth $3.5 billion compared with $11.8 billion the week before, Sinche said. Bearing in mind that the dollar has gained more since Tuesday, he reckons market positioning is even closer to neutral. This might not be particularly supportive of the dollar.
"The market's getting closer to square, and perhaps a little bit longer of dollars than it's comfortable with in the medium term," Sinche said.