The main FX positioning story was the unwind of a massive carry trade and the associated yen shorts, Société Generale FX strategists note.

CAD short covering looks far from over

“As we suspected on 7 August, these shorts were almost cleaned out, while CFTC reports released since then show that yen positions have totally normalised. Now, the biggest FX position is in CAD, as a very significant short accumulated between March and July.”

“The reversal of this position started this month and has already pressured USD/CAD below 1.35 from 1.40. But given the size of the remaining short, the CAD short covering looks far from over.”