IMM speculation slash net short yen positions again: CFTC

Amid persistent speculation China might soon allow its currency to trade more freely, speculators in IMM currency futures again slashed their net short Japanese yen positions in the week ended Tuesday, May 3, data released on Friday showed. International Monetary Market speculators cut their net short position to 14,131 contracts from 32,502 contracts reported the previous week, data from the Commodity Futures Trading Commission's Commitments of Traders showed. Net yen positions have been slashed by around 40,000 contracts since a six-year high in net short positions was recorded only two weeks ago.
"And I'd say we've had an extension of that move amid the Chinese yuan revaluation fever," said Sean Callow, currency strategist at IDEAglobal in New York.
Speculation that Beijing might allow more currency flexibility, thus letting the yuan appreciate, has fuelled expectations of a domino-effect rally in the Japanese yen and other Asian currencies.
Earlier on Friday, the yen hit a three-month high against the euro.
The shift in the overall IMM yen position was a combination of short positions being trimmed and long positions being extended, Callow noted.
Being "long" a currency is effectively a bet that it will strengthen, while "short" positions are bets that a currency will weaken
Elsewhere, IMM speculators extended their net short Canadian dollar positions to 33,321 contracts, the largest since October 2000.
But given the size of that position and the unit's recovery in the spot market since Tuesday, positioning isn't expected to be too much of a drag on the Canadian dollar in the near term.
When market positioning gets to extreme levels, a move in the underlying currency in the opposite direction is often imminent. In this case extreme net short positions, or bets against the Canadian dollar will fall, could signal a recovery in the currency as dealers pare back that overexposure.
Cooling fears over a Canadian political crisis and stubbornly high oil prices should help support the Canadian dollar, IDEAglobal's Callow said.
The overall net long US dollar position against its six most heavily traded rival - the euro, yen, sterling, Swiss franc, Canadian and Australian dollars - was trimmed to 4,664 contracts from 10,622 contracts a week earlier.
Meanwhile, the net long position in the Mexican peso was increased to a new record of 76,322 contracts, heightening the prospect of long liquidation and subsequent decline in the currency.