Euro to the Highest Since May

Ashraf’s call for EUR/USD at 1.40 got a boost on Friday as the pair climbed to the highest since May. The New Zealand dollar was the best performer on the week while the yen lagged. The weekly Commitments of Traders report showed AUD longs at a record.

Friday was an unusual day in markets. Stocks in Shanghai surged 4.3% after a mildly stronger-than-expected China PMI. The Asian optimism didn’t spread, however, and commodity currencies and the euro were flat or lower in early US trading.

The inability of risk trades to rally was especially puzzling because US economic indicators upbeat. The Markit manufacturing PMI rose to the highest since April, easily beating expectations. Industrial production was also strong.

Shortly after the European close, a wave of US dollar selling washed over markets. The timing of the moves was unusual but the direction made sense given the earlier news flow.

In any case, the euro blasted higher eventually touching above 1.3172, which was the September high. A weekly close above that level would have given euro bulls reasons for optimism but the high was breached by a single pip and then retraced.

Monday’s price action will be key. A further break of 1.3172 clears the way higher while a failure raises the possibility of a double top.

The strength in the commodity currencies has been formidable. The kiwi has gained in virtually every trading session in December, easily outpacing the rest of the market in that period. The RBA rate cut barely left a blip on the Australian dollar radar.

Oddly, CAD has been the black sheep of the bloc. Last week’s Nexen/Progress takeovers were bullish and China announced a further $2B investment in Canadian oil on Friday. It would be no surprise to see Canadian dollar strength (USD/CAD weakness) as it catches up to its commodity cousins.

Commitments of Traders

The weekly data from the CFTC as of the close on Tuesday showed a fresh 5 year high in yen shorts. Australian dollar longs also broke above 100K for the first time on record. The combination should make AUD/JPY longs nervous.

JPY net short 94K vs 90K EUR net short 32K vs 33K GBP net long 28K vs 27K AUD net long 103K vs 92K CAD net long 62K vs 57K NZD net long 25K vs 21K