net short position

Agriculture – Black Sea Grain deal extension in focus Grain markets will focus on the Black Sea Grain Initiative today. The deal is scheduled to expire today and up until now, there has been no decision from Russia on whether they will extend their participation in the deal. Ukraine has shipped about 33mt of grains since July 2022 under the deal. Failing to extend the deal would lead to a tightening in grain markets, which would propel prices higher. The latest Commodity Futures Trading Commission (CFTC) data shows that money managers increased their net bearish bets in CBOT corn by 44,843 lots over the last week, leaving them with a net short position of 63,052 lots as of 11 July. The move was predominantly driven by fresh selling, with the gross short increasing by 36,038 lots. CBOT wheat saw a marginal reduction in the speculative net short, with speculators buying 1,878 lots to leave them with a net short of 52,128 lots. Meanwhile, speculators reduced their net long in CBOT soybean by 6,394 lots to 82,748 lots.

The net short position in USD grew by $490 million to -$16.272 billion over the reporting week after a strong correction a week earlier. The decline is largely related to long positions on the euro, and in terms of other major currencies, the notable trend is selling across all significant commodity currencies (Canadian, Australian, New Zealand dollars, and also the Mexican peso). The yen and franc are slightly doing better, i.e., there is demand for safe-haven currencies and a sell-off in commodity currencies. Since long positions in gold have decreased by $4.5 billion, we can expect increasing demand for the US dollar.     PMIs for the eurozone, the UK, and the US will be published on Wednesday, which can significantly influence the rate forecasts of the European Central Bank, the Bank of England, and the Federal Reserve. Last week, we witnessed a clear uptrend in bond yields, suggesting increased demand for risk amid more upbeat economic reports. At the same time, we see a sharp deterioration in China's economy, which, on the contrary, points to slowing demand. This dilemma may be resolved after the release of the PMIs, so we can expect increased volatility.   EUR/USD The final estimate confirmed that the euro area annual inflation rate was 5.3% in July 2023, with core inflation unchanged at 5.5%. Since there are no seasonal factors that could explain the price increase at the moment, it would be best to assume the most obvious explanation - price growth is supported by broad price pressures in the growing services sector. Stubborn inflation supports market expectations that the ECB will raise rates in September, and this increase is already reflected in current prices. The strong labor market is also in favor of a rate hike. After a sharp decrease a week earlier, the net long position in the euro grew by $1.275 billion, putting the bearish trend into question. The settlement price is below the long-term average, giving grounds to expect a continuation of the euro's decline, but the momentum has noticeably weakened.   A week earlier, we assumed that the bearish trend would continue. Indeed, the euro consistently passed two support levels, but did not reach the 1.0830 level. The resistance at 1.0960, which the euro can reach if a correction develops, is still considered in the long term. We assume that the trend remains bearish, and the 1.0830 level will be tested in the short term. GBP/USD Inflation in July fell from 7.9% to 6.8%. This is mostly due to the fall in the marginal price of OFGEM (Office of Gas and Electricity Markets) from 2500 pounds to 2074. Without this decline, inflation would have still fallen, but much less - to 7.3%. Despite the sharp decline, inflation remains at a very high level, and further falls in the marginal price of energy carriers are unlikely. The NIESR Institute suggests that, among the possible scenarios for future inflation behavior, we should choose between "very high", assuming an average annual inflation of around 5% over 12 months, and "high persistence", which is equivalent to an annual level of 7.4%. Needless to say, both scenarios imply inflation higher than in the US, so the likelihood of a higher BoE rate remains, leading to a yield spread in favor of the pound. These considerations do not allow the pound to fall and support it against the dollar, while against most major currencies, the dollar continues to grow. After three weeks of decline, the long position in GBP grew by $302 million to $4.049 billion. Positioning is bullish, the price is still below the long-term average, but, as in the case of the euro, an upward reversal is emerging.       In the previous review, we assumed that the pound would continue to decline, but UK inflation pressure remains stubborn, which changed the rate forecast and supported the pound. A correction may develop, and the nearest resistance level is 1.2813. If the pound goes higher, the long-term forecast will be revised. At the same time, we still consider the bearish trend, and the chances of restoring growth are high, with the nearest target being the support area of 1.2590/2620.  

Global bond yields have noticeably fallen in the last 24 hours after softer-than-expected preliminary PMI data. A significant drop in activity has been noted in the eurozone's services sector, especially in Germany. This reduces the chances of the European Central Bank raising rates in September and weighs on the euro. On Thursday, the market will focus on the report on durable goods orders and the weekly unemployment benefits. USD/CAD Retail sales in Canada showed weak results, leading to a decline in yields of short-term Canadian government bonds and a decrease in the CAD exchange rate.       At the same time, the pace of growth in average wages remains high, as the labor market supply lags behind demand. To curb inflation, there needs to be a swift deceleration in wage growth, which is only possible in conditions of a saturated labor market or a general economic slowdown. Another route is an increase in productivity, which remains low with no signs of improvement yet. The net short position on CAD increased by CAD 799 million for the reporting week, reaching CAD -845 million. Positioning is bearish, and the price is moving upwards.   A week earlier, we assumed that the upward movement would progress, and the main target is the upper band of the channel at 1.3690/3720. This target remains relevant. The consolidation is due to technical reasons rather than fundamental ones, and after the consolidation or minor correction concludes, we expect to see further growth.   We perceive support in the middle of the channel at 1.3360/80, but a potential decline to this zone before turning upwards seems unlikely. USD/JPY The core inflation rate (excluding fuel and food prices) in July accelerated from 4.2% to 4.3%, indicating that the Bank of Japan's cautious policy hasn't yielded significant results yet. The BOJ is the only one among major central banks continuing an ultra-soft policy, based on the assumption that inflation largely has an imported nature and will decrease as soon as global energy prices stabilize and the previously disrupted supply chains of goods and raw materials are restored       Such an approach might be justified, but the growth in core inflation indicates that there's more to it, and the Bank needs to be very cautious in choosing its next steps. The Ministry of Finance plans to allocate 28,142.4 billion yen to service the national debt in the 24th fiscal year, which is 2,892.1 billion yen more than in the 23rd fiscal year. The rate used to calculate JGB bond servicing costs remained at 1.1% for seven years, from the 17th to the 23rd fiscal year. If the Bank of Japan begins to raise the accounting rate, the calculated rate for servicing will also be increased for the first time in 17 years. Currently, there are no problems in servicing the national debt, but by the end of the 22nd fiscal year, the outstanding volume of JGBs amounted to a staggering 1,027 trillion yen. If Japan's economy continues to grow, increasing tax revenues will allow the debt to be serviced without significantly increasing borrowing.   However, if the global economic crisis intensifies, an increase in the BOJ's rate will lead to a rapid increase in the government's debt servicing expenses. For now, we must assume that any hints at an interest rate hike will lead to the yen's growth, complicating the debt servicing situation due to a deteriorating trade balance and reduced budget revenues. The Japanese government fears this scenario, hence any comments on monetary policy will continue to be very cautious. In the current circumstances, the yen is more likely to depreciate than strengthen. The net short position on JPY was slightly adjusted by 300 million, to -6.952 billion, with positioning decidedly bearish. The price is above the long-term average, the trend remains bullish, but the chances of an extended consolidation or a shallow correction has increased.     We expect an uptrend from the USD/JPY, with the upper band of the channel at 147.80/148.10 as the target. The risk of a deeper correction to the middle of the channel at 142.50/80 has increased, but the long-term trend remains bullish, and there's no reason to anticipate a reversal at the moment.  

Agriculture – specs buy corn and soybeans The latest CFTC data shows that speculators were more constructive for CBOT soybeans and corn over the last week due to a slight deterioration in crop conditions. Managed money net longs in CBOT soybeans increased by 32,779 lots over the last week to 90,985 lots as of 29 August. For corn, money managers trimmed their net short position by 18,787 lots to leave them with a net short of 87,348 lots. However, speculators added to their net short in CBOT wheat, selling 8,960 lots over the last week to leave them with a net short of 79,881 lots.