Inside the Currency Market: FX Flow Reports

USDJPY loses out as Fed holds the line
There was only one standout flow last week as the Fed held the line on normalisation.
USDJPY saw its second-biggest liquidation week on record, and the flow was evenly
split by both hedge funds and asset managers (unadjusted for options). Japanese asset
managers may have been positioned for a different decision and also chose to reduce
an existing dollar overweight. However, this should not detract from the secular
rebalancing of Japanese assets, which is necessary for the economy to renew reflation
efforts. FY 2015 was already weak for portfolio outflows but cumulative outbound FDI
was on course to surpass CY2014 amounts. Otherwise, G10 net flows were flat while
the Fed decision did not result in an EM fillip.

EURUSD: EURUSD was net sold for the first time over a month, with asset managers
leading the selling. Hedge funds were light sellers while corporate selling generated the
residual liquidation. Overall, real money has net bought EURUSD over the past four
weeks and within the G5, EUR positioning now ranks just behind the JPY. We believe
this can accumulate further before ECB tolerance levels are challenged.

USDJPY, EURJPY: USDJPY was net sold for the ninth week in a row but the outflow
itself was the second-largest on record. Asset managers just shaded hedge fund in
selling, and while neither client category had a record week in selling, it was rare to see
simultaneous liquidation on this scale. JPY longs are now challenging the extremities of
our flow monitor and as Q4 easing expectations build, we believe risk reward is
strengthening to re-engage in JPY shorts.
EURJPY was net bought on the week.

GBPUSD, EURGBP: GBP was net sold on the week due to light liquidation against both
the USD and EUR. The BoE’s concerns over currency pass through remains dynamic but
at this point tolerance levels are low until domestic reflation momentum reaches escape
velocity. Private client liquidation in GBPUSD in particular is gathering pace.

USDCHF, EURCHF: USDCHF and EURCHF nearly generated a fourth straight week of
inflow: EURCHF was net bought on the week again but USDCHF was net sold by a very
fine margin. Nonetheless, as opposed to the reaction in USDJPY, that USDCHF failed to
suffer greatly from the FOMC decision shows liquidity preference in CHF remains weak.

USDCAD, AUDUSD, NZDUSD: Commodity names were flat on the week.

EURNOK, EURSEK, USDNOK, USDSEK: Volumes are falling sharply in the Nordics but
firm SEK 3m long positioning is looking stretched despite a less negative Riksbank.

Horizon Net Flow (%) Turnover (%) Horizon Net Flow (%)
USD 1w -4.9 85.3 3m 0.7
4w -1.1 98.5 12m -0.5
EUR 1w 1.1 75.1 3m 1.3
4w 1.3 93.0 12m -0.4
JPY 1w 15.4 109.0 3m 5.9
4w 5.9 102.9 12m 4.8
GBP 1w -3.3 81.3 3m 0.6
4w 0.6 104.9 12m -2.0
CHF 1w -1.4 83.5 3m -3.2
4w -3.2 99.1 12m -1.1
CAD 1w -0.8 102.4 3m 0.6
4w 0.6 114.0 12m 2.5
AUD 1w 2.1 101.1 3m 0.5
4w 0.5 97.3 12m 0.1
NOK 1w 2.1 64.7 3m 8.5
4w 8.5 77.4 12m 3.7
SEK 1w 12.3 84.3 3m 6.7
4w 6.7 97.5 12m -0.2
NZD 1w 0.9 71.8 3m -2.1
4w -2.1 88.0 12m 0.3

MXN 1w 4.2 138.9 3m -11.6
4w -11.6 93.7 12m -2.4
BRL 1w 22.0 28.1 3m 6.4
4w 6.4 75.8 12m 0.5
KRW 1w -38.8 88.2 3m -1.9
4w -1.9 121.3 12m -4.9
SGD 1w -25.1 95.6 3m -25.3
4w -25.3 117.3 12m -6.5
HKD 1w -6.3 55.4 3m -5.2
4w -5.2 116.4 12m -16.8
ZAR 1w 9.9 89.7 3m 1.0
4w 1.0 91.2 12m -2.3
TRY 1w -1.6 71.0 3m -1.3
4w -1.3 54.3 12m 2.6
HUF 1w 7.2 40.6 3m 0.9
4w 0.9 54.3 12m -5.0
PLN 1w -4.0 42.3 3m 33.7
4w 33.7 74.3 12m 1.8
CZK 1w -79.9 125.4 3m -16.4
4w -16.4 193.6 12m -10.7

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