NEW YORK: US dollar net shorts declined from a more than nine-year high hit a week earlier, according to calculations by Reuters and US Commodity Futures Trading Commission data released on Friday. The value of the net short dollar position hit $31.56 billion in the week ended Aug. 18, from net shorts of $32.12 billion the previous week. US net shorts declined for the first time in seven weeks.
The speculative community has been short the dollar since mid-March. US dollar positioning was derived from net contracts of International Monetary Market speculators in the Japanese yen, euro, British pound, Swiss franc as well as the Canadian and Australian dollars.
In a wider measure of dollar positioning that includes net contracts on the New Zealand dollar, Mexican peso, Brazilian real, and Russian ruble, the US dollar posted a net short position of $31.83 billion, compared with net shorts of $32.28 billion the week before.
The dollar has been pressured by near-zero interest rates, a Federal Reserve that has flooded the financial system with cash, as well as a slowing US economy amid persistently elevated Covid cases. So far this year, the dollar has declined 3.3%, and since late March, has fallen near 10%.
But after extreme short dollar positioning, the buck was due for a pullback. The recovery in the dollar began on Wednesday after the Federal Open Market Committee released minutes from its last meeting, the tone of which was more dovish than expected. The minutes prompted dollar bears to buy into the heavily shorted currency, fueling its biggest one-day surge in more than two months.
Net euro longs, meanwhile, slipped from last week's record high to 196,943 contracts in the latest week.
"Sentiment trends have been dominated by the accumulation of euro bullish positioning - triggered initially by euro short covering in the early part of the year and subsequently, through late June/early July, by the jump in gross long euro positions," wrote Scotiabank in a report on the latest IMM futures contracts. But Friday's data showing the eurozone's business recovery stumbling in August could spur more reduction in euro long positions.
Covid cases have also been on the rise in Europe, with spikes seen in Spain and France. "Should the continent see a resurgence of infections for a second wave the bullish case for a rebound will be greatly undermined threatening the rally in euro/dollar," said Boris Schlossberg, managing director of FX strategy at BK Asset Management.