Jane Foley, Research Analyst at Rabobank, notes that the CFTC data suggest that speculators have been reducing long dollar positions since last spring. Key Quotes “This coincides with the paring back of market expectations regarding Fed tightening. In recent weeks the market completely priced out any further Fed interest rate hikes this year. Given the recent signals from Fed officials such as George and Fischer, this move may be overdone and the selloff in the USD may have also have been pushed too far. Despite a clear slowing in the US manufacturing sector, the services sector remains robust. Also both CPI and PCE inflation data have been ticking higher and wage inflation appears to have regained an upward trend. Based on our view that the Fed is still likely to hike rates later this year we expect that the USD will be able to claw back some ground vs. both the EUR and the JPY. That said, we maintain that USD upside is likely to be moderate. As we argue frequently the EUR and the JPY are funding currencies meaning these currencies are unlikely to fall significantly unless risk appetite rises across the board. We retain a 12 month forecast of EUR/USD 1.05.” For more information, read our latest forex news.