Onto Japan GDP, EURUSD Hit Net Longs

USD/JPY is slightly higher to begin the week but upcoming Japanese Q2 GDP numbers could quickly change the picture. The Australian dollar was the best performer last week while the US dollar lagged. The latest CFTC data shows speculators betting on the euro for the first time since May.

The moves in early week trading are modest but the Australian dollar is a quarter-cent lower after a sizeable rally last week. The WSJ and others wrote about China on the weekend and the consensus is turning more optimistic, especially after Friday's rise in industrial production (+9.7% vs +9.0% exp).

The Canadian dollar was particularly noteworthy on Friday with a loss of 39K jobs compared to a gain of 10K expected. USD/CAD rose a half-cent on the headlines then quickly turned around and finished at the lows of the day. A quiet summer market or corporate flows could explain the turnaround but strong demand for Canadian dollars could also be the culprit – something that would point to a larger USD/CAD decline.

The SNB was in the headlines on the weekend, warning that banks are underestimating the real estate risks of rate hikes. The comment could be an early step aimed at preparing the financial sector for the end of the EUR/CHF floor.

A big test for Abenomics, at least from the general public's perspective, comes at 2350 GMT when Japan releases Q2 GDP. Annualized GDP is expected at a rousing 3.6% pace, or 0.9% q/q.  One focus will be nominal GDP (exp +1.0% q/q) because curbing deflation is a key government goal.

Commitments of Traders

EUR +6K vs -8K prior JPY -80K vs -82K prior GBP -46K vs -49K prior AUD -77K vs -73K prior  CAD -10K vs -11K prior NZD -1K vs -1K prior CHF -0.3K vs -1K prior US Dollar Index longs at 25K vs 25K prior

A shift toward neutral from the ECB has cleared out bets against the euro while GBP shorts remain aggressive, leaving a larger risk of a squeeze. The greatest risk of a stop-driven rally is in AUD, where the short position is at a cycle high.