Speculators go long on the US dollar at the expense of pound sterling and Canadian dollar

"The subsequent USD rise at the end of last week suggests this positioning is likely to have been extended even further in recent days. While it is clear that the US economy is outperforming those in Europe, this has been true for some time but has so far had little consistent positive impact on the USD," says a currency note from Lloyds Bank.

The recent rise in the USD may have been based more on speculation of changing reserve management patterns from China, but there is little clear evidence on this at this stage. In the absence of significant news on this, or any major evidence of above trend US growth, the market’s long USD position suggests USD vulnerability.

Lloyds say:

"In contrast to most USD positions, net AUD long positions were substantially reduced in the week to May 7th, and may well have turned negative since as AUD/USD spot has broken through the key 1.01-1.0150 area that had market the low since the middle of 2012. Indeed, positioning is now less net long than it has been at any time since last summer."

In practice, AUD positions have rarely tended to be short for long periods (reflecting the tendency of carry trades to go “up the stairs and down the lift shaft”), but with the latest RBA rate cut the AUD may be seen as less of a carry trade than it once was, so a longer period of weakness may now be possible.

"GBP, CAD and JPY represent the three biggest long USD positions on the CME, but we struggle to justify big declines in any of these three in the short run," say Lloyds.

It is worth noting that the JPY is now substantially undervalued, the UK data has been improving of late and the BoC still seems likely to hike rates before the Fed.

Sentiment remains very JPY negative, but less obviously so in GBP and CAD, where positioning could consequently now be vulnerable.

The CHF was one of the weakest currencies at the end of last week in response to the USD rally, and USD/CHF risk reversals have moved to the highest level since last summer.

There has been a general move out of the old safe havens in recent months, so to that extent the move out of CHF makes sense, and there may be further to go. However, the USD is also a safe haven, so it makes more sense for the CHF to fall against the EUR in this environment, while relative value against the JPY is also now looking extended.