[ForexNews]

It is somewhat surprising that EUR/USD was unable to break above its recent range last week, despite the surge in oil and equity prices. A potential reason could be the diminishing effect of reserve rebalancing by EM central banks. Evidence that China's foreign reserves continued to grow in Q2 suggests that the associated rebalancing flows were partly behind the rally in EUR/USD over this period. However, a continued narrowing of China's trade surplus should slow the pace of reserve accumulation. While USD is expected to fall further this year, a decline in rebalancing flows reinforces the view that the depreciation will be gradual.


CFTC: USD short positions the largest in a year

The CFTC positioning data for the week to July 21 shows that USD net short positions grew to their largest level in twelve months, reaching 133.8K. The largest contributor to this was a rise in EUR net long positions to 34.8K from 13.9K - the highest level since March 2008, when EUR/USD was close to record highs. USD weakness was across the G10, however, with AUD net long positions growing to 38.8K from 25.6K and returning to being the largest position in G10 FX. JPY net long positions against the USD grew modestly to 36.2K from 33.6K and are the second largest position in G10 FX. CAD and CHF net long positions grew to 16.5K from 5.9K and to 13.2K from 10.8K, respectively. Only the GBP has a net short position vs the USD and this fell to 5.7K from 12.7K