USD Leads May Despite Last 3 Days

A strong official PMI from China contrasted a weak reading on the sector from HSBC. Despite a three day slump to end the month, the US dollar was easily the best performer in May while the Australian dollar lagged badly. Weekly CFTC positioning data show growing AUD and CHF shorts. We reintroduced USDCHF after a long absence from the Premium Insights with 2 new trades and monthly and weekly charts. 1 EURUSD remain in progress as well as 3 USDJPY, 2 EURJPY, 2 USDCAD and 1 silver. For full detail, see latest Premium Insights.

The official manufacutring sentiment survey from China rose to 50.8 compared to 50.0 expected and 50.6 in April. The number could give the Australian dollar some respite to start the week but traders may be skeptical. The PMI earlier in the week from HSBC slipped to 49.6 from 50.4 in April.

There is also uncertainty about the US manufacturing. Signs were pointing to a worsening slump until Friday when the Chicago PMI soared to 58.7 compared to 50.0 expected. In the span of a month, the index when from the lowest since 2009 to the highest since early 2012.

We caution that it's only one month and one data point but renewed strength from US factories would be another reason to buy the US dollar. The other data point on Friday was the PCE report, which showed core inflation up 1.1% compared to 1.0% y/y expected. Rising inflation could give the Fed an incentive to taper QE, which could be a major boost for the US dollar. One negative part of the report was personal spending, which fell 0.2% in April.   Commitments of Traders

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

EUR -85K vs -81K prior JPY -100K vs -95K prior GBP -75K vs -77K prior AUD -42K vs -32K prior CAD -33K vs -34K prior NZD +14K vs +18K prior CHF -29K vs -20K prior US Dollar Index longs at 46K vs 43K prior

The market has quietly built up the largest short position in CHF in 11 months. There are always rumors about hiking the EUR/CHF floor but it's mostly a trade on dollar strength and improving fundamentals in Europe.

Meanwhile, euro shorts are showing no sign of quitting even though more than half of the short position was initiate in the past two weeks – all of which are underwater. It's also interesting to note the lack of movement in NZD despite the rush in Australian dollar shorts. The carry is better in New Zealand but it's difficult to imagine the divergence continuing.