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CFTC: Euro Bears Coming Out of the Woods

Speculators made several significant position adjustments in the CFTC reporting period ending 19 July.  The euro bears added to their gross short position for the fourth consecutive week and for the ninth week in the past ten.  The 16.2k contract increase lifted the gross short position to 211.5k contracts, the largest since the first week of the year.

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(Some) Money Markets Float On this October

The weighted average of the Fed funds rate has edged higher.  Following the Fed hike in December 2015, the Fed funds average around 36 bp in January before moving into a 37-38 bp range.  However, since the UK referendum it has been trading consistently around 40 bp.

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No Khat For You

In 2014 the UK banned khat, the stimulant stems and leaves of the tree Catha edulis. In Kenya, it is more commonly known as miraa or veve.

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Divergence between the U.S. and other Economies Keeps Dollar Bull Case Alive

Our underlying constructive outlook for the US dollar remains intact.  It is broadly based on the divergence between the US and most other major economies.  The US acted early and aggressively to counter the Great Financial Crisis.  Unorthodox policies, such as quantitative easing, were adopted years before the ECB and BOJ.  This has produced different outcomes.  US economic growth may not be impressive by pre-crisis standards, but it does not seem particularly fragile.

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CFTC: From the Long to the Short of It

The combination of a robust US jobs report, speculation of bolder action by Japan, the possibility that the ECB drops the capital key to overcome the ostensible shortage of some core bonds (e.g. German bunds), and the anticipation of easier BOE policy appears to have generated a change in sentiment among speculators in the currency futures market.

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Other Currencies Matter

The US dollar is easily the most traded currency, and despite the plethora of other currencies, it is on one side of nearly 90% of all trades.  Yet the movement in the foreign exchange market presently is not so much driven by the dollar, as it is other currencies.

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CFTC: Currency Speculators still on the Dollar Sidelines

The UK voted to leave the EU. The German and Japanese yield curve is negative out through 15 years.  The entire Swiss curve has negative yields.  There is little doubt that the US economy was recovering from a soft six-month stretch even before the recent string of data.  Even then, speculators in the futures market mostly added to foreign currency exposures.

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Is the Yuan Really Weak?

Here are two Great Graphics that portray two time series: the dollar-yuan exchange rate and the yuan against a trade-weighted basket.  The first chart comes from a highly reputable consulting firm. It replicates the trade-weighted basket that Chinese officials unveiled and shows how it would have performed in the past.

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Don't Panic! Buy...Maybe

Financial markets around the world are responding to current political uncertainty in both Australia and the UK by sending stocks, bonds and currencies on a rollercoaster ride.  The far-reaching implications of Brexit caused the S&P/ASX 200 volatility index (A-VIX) to spike to the highest level since the start of 2016. Similarly, the A-VIX jumped 5% in the opening minutes of trading on Monday after it became clear the federal election would remain unresolved.

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Life in the Slow (Trading) Lane

It sounds like a scene from “Jurassic World”: fast, agile predators pursue their slower, less nimble prey, as the latter flee for safer pastures. Yet this ecology framework turns out to be an apt analogy for today’s financial markets, in which ultra-fast traders vie for profits against less speedy counterparts.

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