- Currency futures saw a mixed sentiment as traders digested geopolitical tensions.
- The US dollar stays bearish while commodity and risk assets remain up.
- Future traders are now awaiting FOMC and BoE meetings due this week.
Currency futures showed a mixed sentiment on Monday as traders responded to the geopolitical tension, a weaker US dollar, and shifting speculative positions. The speculative flow via the IMM futures market revealed a clear bias that hedge funds and asset managers added to their short positions. Net speculative positioning showed a 31% rise in USD short contracts, led by increased long exposure in euro, pound, and CAD.
The US dollar edged higher by 0.25% by late last week. However, the price remained below the psychological mark of 100.00. Despite the rising Israel-Iran tension and higher oil prices, the dollar failed to gather safe-haven flows. Mainly, the analysts attribute this to investor fatigue with geopolitical risk and Fed’s anticipation of holding rates in the next meeting. The Fed’s dovish tone amid last week’s cooling inflation data may limit the dollar’s upside.
Canadian dollar futures benefitted from the recent spark in crude oil, stemming from the Middle East supply disruption concerns. Brent crude saw a surge of 7% last week. Meanwhile, other commodity currencies like the Australian dollar and the New Zealand dollar gained modestly as risk appetite remained intact.
Safe-haven currency futures like the yen and Swiss franc showed slight movement, signaling traders are not in a rush to defensive positions despite heightened geopolitical uncertainty. Instead, futures flows suggest a structural short preference and selective long bets on currencies with favorable yield dynamics.
The most important data/events for currency markets include the FOMC meeting and the Bank of England interest rate decision as well. Both central banks are expected to hold rates. However, the commentaries are key to watch, as both the UK and the US saw a decline in economic data last week that may urge them to look for easing in later meetings.
Overall, the currency markets remain in a complex shape due to geopolitical risks, diverging central bank outlooks, and technical flows. The dollar’s weakness prevails, though short-covering risks loom amid Middle East tensions and potential Fed surprises. Until then, currency futures reveal a clear bearish dollar narrative.
