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FX Positioning Analysis Summary (2 July 2018)

Core Content

This document provides an analysis of FX positioning from BNP Paribas London Branch, authored by Natalie Rickard, an FX Strategist. It outlines the current state of FX fund positions across various major currencies, using a positioning score system that ranges from -50 to +50, based on historical data from the prior five years. The scores represent the percentile of market positions, with values above 40 or below -40 indicating extreme positions.

Main Points

• EUR Positioning: The short EUR position has been significantly reduced over the past week, moving from -22 to -3 on the scale. This suggests a shift away from shorting the euro.

• GBP Positioning: The market's short GBP position has increased sharply to -18, indicating that FX funds are building large short positions in the British pound.

• NZD Positioning: NZD shorts have extended rapidly to -34, which is the largest short position since November 2017, showing a strong bearish sentiment towards the New Zealand dollar.

• USD Positioning: Long USD positions remain large but have moderated slightly to +19 over the week, reflecting a slight easing in bullish sentiment for the US dollar.

Key Information

• The overall positioning score for each currency is calculated as an equally weighted average of several components, including:

  • Client Exposure: An internal estimate of FX investor exposure.
  • IMM (Commitment of Traders): A proxy for US-based hedge-fund and CTA activity.
  • Risk Reversals: Reflect the relative price of calls versus puts, indicating market sentiment.
  • FX Fund Position Tracker: A regression-based decomposition of fund positioning.
  • BNPP Trending Indicator: A technical measure of currency momentum.

• The document includes several charts (Chart 1 to Chart 22) illustrating the positioning scores for different currencies, which are sourced from BNP Paribas. These charts help visualize the shifts in market sentiment over time.

• The report is intended for professional clients and relevant persons as defined by MiFID II and other regulatory frameworks. It is not investment research and may contain marketing communications.

Legal and Disclaimer Information

• The document is not intended to be an exhaustive analysis and may be subject to conflicts of interest due to interactions with sales and trading.
• It is non-independent research and may contain "Research" as defined under MiFID II unbundling rules.
• The information is based on public sources and may not have been independently verified. BNPP does not accept responsibility for the accuracy or completeness of the information or opinions provided.
• No guarantees are made regarding the accuracy of the data or the future performance of the instruments discussed.
• The document may include performance data based on back-testing, which is for illustrative purposes only and does not reflect real-world market factors like liquidity constraints or transaction costs.
• It does not constitute a prospectus or public offering and is not intended to provide investment, tax, or legal advice.
• The document is for internal use and may not be distributed without prior written consent.

FX Strategy Contacts

The document includes contact details for various FX strategists and research teams within BNP Paribas, covering different regions and roles. These include:

• Michael Sneyd, CFA – Global Head of FX Strategy & Cross-Asset Strategist
• Sam Lynton-Brown – FX Strategist
• Natalie Rickard – FX Strategist
• Alex Jekov – Graduate
• Daniel Katzive, CFA – Head of FX Strategy North America
• Vasilis Koutsaftis – FX Options Strategist
• Wike Groenenberg – Head of Emerging Markets Research, CEEMEA & APAC
• Marcelo Carvalho – Head of Emerging Markets Research, Latam
• Sai Ulluri – FX & IR CEEMEA Strategist
• Shaun Daly – FX & IR CEEMEA Graduate
• Erkin Isik, CFA – FX & IR CEEMEA Strategist
• Altaz Daga – APAC IR Strategist
• Dawn Kwa – Asia FX & IR Strategist
• Kun Shan – China Strategist
• Tianhe Ji – China Strategist
• Gabriel Gersztein – Head FX & IR Latam Strategy
• Samuel Castro – FX & IR Latam Strategist
• Luca Maia – FX & IR Latam Strategist
• Andre Digiacomo – FX & IR Latam Strategist

Additional Information

• The document is also available on the BNP Paribas Global Fixed Income Website at www.globalmarkets.bnpparibas.com.
• For Bloomberg users, it references BPFR (Fixed Income Research) and BPBS (G10 Interest Rate Research).
• It contains Important Option Disclosures, Important ETF Disclosures, and Important Disclosures for Convertibles Securities or other Securities not registered under US Securities Laws, highlighting the risks and regulatory considerations.

US Disclosures

• Options and ETFs discussed may involve significant risks and are not suitable for all investors.
• BNPP may have conflicts of interest related to these products and may engage in transactions that are inconsistent with the views expressed.
• Certain securities may not be registered under US law and are only available to Qualified Institutional Buyers or non-US persons.

UK and France Disclosures

• The document is communicated by BNP Paribas London Branch and is subject to regulation by the Financial Conduct Authority and Prudential Regulation Authority.
• In France, the report is produced and/or distributed by BNPP SA and/or BNPP Arbitrage, which are authorized and supervised by the ECB and ACPR.

Conclusion

This report is a comprehensive overview of FX market positioning, highlighting the shifting sentiments and positions of major currencies. It is intended for professional use and is subject to various legal and regulatory disclosures. The analysis provides insights into market behavior and may assist in making informed trading decisions.