Catalyst for shorts in Euro & AUD on the way

The latest CFTC COTR data show some interesting trends in currency positioning that could have a significant implications across financial markets and commodities. In particular, the lack of short interest in the Euro seems likely to be something that will shift when the ECB provides more easing next month.

The Euro has confounded expectations of 18 months or so ago by rising to above 1.35 against the USD.

But shifting policy has proven to be a strong catalyst for change in FX markets.  While the ECB won't to do anything like the BoJ and the subsequent impact that action had on the yen, it is still likely to be a key moment for markets.  And the fact that short interest doesn't current appear to be large suggest there is scope for significant change.

Gold is the one commodity most affected by movements in the world of FX.  This isn't always straightfoward; back in 2010, long gold/short Euro was one of the more popular trades.  But this time around, it seems likely that Euro weakness, along with RMB weakness, should be a negative for gold as the USD strengthens.

Like the Euro, there isn't a huge amount of speculative short interest in gold isn't large at present.

It's also interesting that the AUD has moved to a net-long position in the last few weeks, even as key commodity prices like iron ore have weakened a lot.

The Australian economy isn't all commodities, with strong housing markets and better employment data shifting markets away from more rate cuts.

The risk here is that the point of maximum benefit from the most recent round of cuts now appears to be fading, with big challenges still ahead from a fall in mining related investment in the next 12-18 months. That should put the AUD back on the back foot.