ECB Doves Grow Louder

Two ECB Governing Council members hinted at sovereign QE as the chorus grows louder with the ECB meeting exactly one month away. Early-week moves have been small so far after USD led last week and CHF lagged. Weekly positioning data showed that CHF shorts picked a bad time to give up. 

The top news on the weekend was from the ECB. Vice-President Constancio said negative inflation is expected in the coming months and that it needs to be looked at very closely. He left himself some wiggle room, however, saying that a few months of negative prices doesn't necessarily signal danger.

Constancio was ambiguous and said the ECB has already waited too long before buying sovereign bonds.

The euro is slightly lower in the first hours of trading but the only notable move in the market so far is a 20-pip decline in the kiwi despite better consumer confidence numbers.

Also on the weekend, BOE MPC member Miles spoke with the press and said there is no urgency in moving monetary policy back towards a more normal setting. He added that it's possible rates won't rise before the end of his term in August. Overall, however, he said deflationary risks are miniscule, especially because it's a global phenomenon rather than something domestic.

On Friday, the Canadian dollar was in focus after CPI rose just 2.0% y/y compared to 2.2% expected. The loonie showed some resilience to the weak reading and has only fallen 4% in the past month despite a 20% decline in oil prices. The loonie is benefiting from proximity to Canada but chatter about housing problems has re-emerged and with lower oil prices, cracks in the economy may begin to appear.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -126K vs -137K prior JPY -87K vs -104K prior GBP +34K vs +35K prior AUD +34K vs +45K prior CAD +16K vs +14K prior CHF -3K vs -22K prior NZD +1K vs +2K prior 

What stands out is that Swiss franc shorts got nervous and bailed as EUR/CHF ticked toward 1.20. But the SNB delivered fresh action and sparked a snap move to 1.21 before traders said 'Merry Christmas' and it was quickly sold back to 1.2020.

The yen short also isn't particularly large and that's good news for the bulls.