Fear or Fundamentals?

The separatist counteroffensive in Eastern Ukraine means violence and sanctions will be a main theme in the day ahead but the underlying story US economic improvement and European malaise continues. Last week the Canadian dollar was the top performer while the euro lagged. CFTC positioning data showed more sellers in the euro and yen.

The Ukraine counteroffensive has put the region back on the front pages and Western leaders are already talking about fresh sanctions. A round of risk aversion on an escalated war of words or any dramatic developments on the ground could rattle markets. On the weekend, Putin called for Eastern Ukrainian “statement” but a Kremlin spokesman appeared to take back the remarks.

The turn of the calendar also brings a wave of tier 1 data and announcements. Ultimately the situation in Ukraine will resolve and fundamentals will be the driver. US data has been a non-stop positive surprise and good numbers from the ISM surveys and non-farm payrolls would almost certainly cause a hawkish shift at the Fed.

The dollar was less robust last week but with traders returning from holidays and the turn of the month, a renewed push into dollar longs is possible.

At the same time, the most-anticipated announcement in the week ahead is the ECB. Some type of announcement, either a rate cut or ABS purchases is about a 50% probability but traders are unsure what to expect and volatile trading is almost a sure thing. We'll have more as the week rolls on.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

• EUR -151K vs -139K prior
• JPY -103K vs -87K prior
• GBP +15.5K vs +13K prior
• AUD +42K vs +37K prior
• CAD +6K vs +7K prior
• CHF -13K vs -15K prior
• NZD +12K vs +12K prior

Euro and yen shorts continue to pile in and leave the market vulnerable to a squeeze. Other positions were relatively unchanged.