US dollar bullish bets rebound after Brexit

Investors increased US dollar net longs to $4.2 billion from $3.0 billion against the major currencies during the previous week, according to the report of the Commodity Futures Trading Commission (CFTC) covering data up to July 5. The economic data in the second week after UK’s decision to leave the European Union were mixed. The most significant positive development was a solid rise in June ISM Manufacturing PMI which recorded an almost 3 point gain to 53.2 from 51.3 in previous month. The increase reflects building strength in manufacturing sector before the Brexit vote and renewed strength of US dollar in subsequent flight to safety. On the other hand slowing growth of personal income and spending in May were not a good news together with slowing factory orders which point to lower capital investment down the road. Nevertheless dollar long bets rose as investors grew more risk averse and prospects of other economies looked even less promising. As is evident from the Sentiment table, sentiment deteriorated for euro, British Pound and Swiss franc. And Australian dollar joined the Japanese yen, Swiss franc and Canadian dollar as the fourth major currency held net long against the US dollar.

The bearish euro sentiment intensified: the net short position in euro widened at more than twice the previous week’s pace rising by $1.8bn to $10.4bn. The euro holds the bulk of net short position against the dollar. The net short position in euro increased as investors increased gross longs by 2431 contracts and built the shorts by 15824 contracts respectively. The British Pound sentiment also deteriorated after surprise improvement following the referendum of June 23 with the net short bets in British Pound rising by $0.4bn to $3.9 billion. The net short position in British Pound widened as the gross longs were increased by 2472 and the shorts were increased by 8792 contracts. The bullish Japanese yen sentiment strengthened with the net long position in Japanese yen rising by $0.5bn to $7.8bn. Investors increased the gross long positions by 1544 contracts and cut shorts by 2274.

The sentiment improved for the Canadian dollar with the net longs rising by $0.2bn to just $0.8 billion. Investors built the gross longs and cut the gross shorts. The sentiment turned bullish toward the Australian dollar after the central bank left the interest rate unchanged at 1.75% with net short bets turning into $366 million net longs. Investors cut the shorts and built the gross longs. The sentiment deteriorated slightly for the Swiss franc with the net long position narrowing by $275 million to $1.1 billion. Investors reduced the gross longs and increased the gross shorts.