Macro Insights Weekly: Taking stock of currency positionings

USD had a good rally in June-July; August may be challenging.
Philip Wee, Chang Wei Liang26 Jul 2021
  • According to CFTC data, speculative net long USD positions were the largest since May 2000
  • All said, several factors might prevent the USD from extending its uptrend into August
  • Progress is needed on Biden’s infrastructure plan and Congress needs to suspend the US debt limit
  • Expect the Fed to balance narrative between higher inflation risks and rising Covid-19 infections
  • Investors are wary of high valuations, a peak in growth, and a roll back of pandemic policies
Photo credit: Unsplash

Commentary: An update on speculative positioning in selected currencies

According to CFTC data for the week to 20 July, speculators’ net long USD positions were the largest since May 2020. However, the DXY index only returned towards the 93.3 high at end-March 2021.

Unlike 1Q21, there was no strong accumulation of gross long USD positions on a rise in the US 10-year treasury yield. The long bond yield fell from 1.70% in May to 1.28% last Friday. This time around, speculators dumped their gross short USD positions from rising US inflation that fueled expectations for the Fed to taper asset purchases over the next 12 months.

Speculative net long EUR positions were the lowest since the initial Covid-19 outbreak in March 2020. Although EUR/USD fell from 1.22 to 1.17 in the past two months, it was still well above the sub-1.10 lows in March-May 2020. Until these net positions turn negative, EUR is likely to hold 1.15-1.20 range for now.

The current landscape mirrored the rebuilding of gross short EUR positions on a more hawkish Fed in 2018 after the reflation trade in 2017. EUR bulls will keep accumulating shorts as long as the Fed maintains its hawkish tilt against the ECB’s dovish pivot. However, EUR bulls lack a weakening EU outlook to unwind their larger gross long positions. 

Speculators turned net short GBP for the first time since last December. This unwinding lowered GBP/USD from 1.42 at the start of June to 1.37 last week. However, GBP lacks the deep net short positions (driven by hard Brexit fears) that pummeled it to 1.20 in 2018-2019. Given the relatively flatter gross positions throughout the pandemic, GBP will probably consolidate in a higher 1.35-1.40 range for now.

Speculators started building gross long GBP positions after the Bank of England closed the door on negative rates in late 2020, followed by UK’s strong vaccination drive in 1H21. Over the past 1-2 months, this optimism was dampened by another rise in infection rates.


Net short AUD positions were the largest since June 2020. In July, AUD probably entered a lower 0.71-0.75 range from 0.76-0.80 in 1H21. AUD is unlikely to repeat the sell-off in March 2020 due to abundant liquidity.

AUD weakness stemmed mainly from fresh gross short positions that started in June from a dovish RBA stance, Fed taper talks and currency depreciation in East Asia, Australia’s largest export region. However, AUD bulls held on to their gross long positions on Australia’s expected growth rebound, rising inflation and the eventual rolling back of its pandemic policies.

To read the full report, click here to Download the PDF.

Philip Wee

FX Strategist - G3 & Asia

Chang Wei Liang

Credit & FX Strategist

Subscribe here to receive our economics & macro strategy materials.
To unsubscribe, please click here.

The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation.  Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies.  The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation.  The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.

This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.

DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. 

DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability.  18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability.  13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong SAR

Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply.  The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.