One Million Dollar Questions, EUR Shorts at 2-Year High

Speculative money is pouring into US dollars on anticipation of a long Fed-inspired bull market but there have been many false starts before. The US dollar was the top performer last week despite paring gains on non-farm payrolls; the loonie lagged. The week begins with Australian retail sales.   

Last week was a powerful demonstration of the will of US dollar bulls. The only really good piece of news was GDP and even that report had a few caveats. Later, the GDP report didn't send and clear signal about earlier hikes and non-farm payrolls showed no wage growth.

News is the ultimate measure of strength in a market and this was clear last week. The US dollar jumped on good news and it fell gently on bad news. The market is absolutely convinced that Fed hikes are coming around this time next year or a bit earlier and that theme is consuming markets.

But there are questions. The bond bears made another attempt at pushing rates higher last week but after hitting 2.61% the 10-year yield finished the week at 2.49%, hardly higher than the previous week's close.

What's clear is that it's a delicate time but that the dollar bulls are slowly winning out. That doesn't mean the move will be one-way forever.

The Australian dollar was the laggard last week along with the loonie and the focus remains on AUD with retail sales due at 0030 GMT. The consensus for June sales is a 0.3% rise. AUD/USD traders are on edge after a two month low on Friday and a bad headline could spark a rush to the exits.

Commitments of Traders

• EUR -108K vs -89K prior
• JPY -73K vs -54K prior
• GBP +25K vs +27K prior
• AUD +39K vs +39K prior
• CAD +22K vs +21K prior
• CHF -11K vs -7K prior
• NZD +15K vs +15K prior

The next shoe to drop could be the commodity currencies. They turned in the last two weeks but specs remain on the wrong side. A good portion of those are likely long-term carry trade positions but there's still room for a squeeze.