CPI Weighs on USD, EUR Shorts Recede

A wave of selling washed over the US dollar Friday after the CPI report. The pound made large gains while the US dollar slumped. CFTC showed euro shorts retreating.

Trading was quiet on Friday until US February CPI figures were released. The report showed inflation at 2.9% y/y, as expected but the US dollar fell hard after the data and continued to slump. Either a strong hand in the market was expecting signs of accelerating inflation or large orders to sell dollars were attempting to use the post-release liquidity.

The euro immediately jumped a half-cent to 1.3130 with other dollar trades moving in a similar large fashion. The selling accelerated after slightly disappointing industrial production figures and then again later after U Mich consumer sentiment at 74.3 compared to the 76.0 expected. EUR/USD touched a high of 1.3187 before stalling out and moving sideways into the close.

Some market talk suggested trepidation about comments from NY Fed President Dudley early on Monday. The chatter was that he could be dovish, which would send US yields lower and hurt USD/JPY.

Stocks were bening on Friday, with the S&P 500 gaining just 0.1% but closing out a 2.4% weekly gain. In forex, the top gainer on the week was GBP while JPY lagged.

Commitments of Traders

The CFTC positioning report showed EUR shorts pared to the lowest level since early December, falling to 99K from 116K. The market is rapidly moving to short the yen as positioning fell to -42K from -19K. Despite recent GBP gains, it remains heavily shorted at -42K compared to -37K a week ago. CAD longs expanded slightly while AUD and NZD longs were scaled back.