US STOCKS: The Russell 2000 Squeezes Shorts, Up 3% Looking To Test Above 2300/50
The Russell 2000 has been heavily sold recently by hedge funds to express their view on growth, but the CPI print overnight has seen the market begin to price in a series of rate cuts. US equities have roared higher on the back of this with the Russell leading the charge +2.99%. With short positioning at extremes it leaves the market vulnerable, a break back above 2300/22350 could start seeing some of these shorts having to capitulate. This could give the Russell the energy it needs to have a look at its previous highs back towards the 2500 area.
- Guy LeBas on X: “I dunno what this means, but the dirtiest, most obvious shorts are all up the most today.”
- Sean D.Emory on X: “Small and mid caps will work best when the market senses an all-clear on rate cuts and a stable macro backdrop. Today was a glimpse, small and mid caps outperformed large caps by 2–3x. It won’t be a straight line, but this is where the value sits.”
- Daily Chartbook on X: "Over July 22nd - August 5th, Hedge Fund short sold $4.3bn - the largest 2 week amount for at least the past 10 years. The resultant level of outstanding shorts in notional terms also marked a new high. -GS Quinn.” See Fig.1 Below.
Andreas Steno Larsen on X: “If we get three rate cuts, Russel is going to explode to the upside.”
Fig.1: Hedge Fund Russell 2000 Length
Source: MNI/@dailychartbook/Goldman Sachs
Fig. 2: Russell 2000 Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
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FOREX: AUD Crosses - Consolidating Recent Gains
This morning has seen US futures open under pressure with Trump issuing fresh 30% tariffs on Europe and Mexico starting Aug. 1, ESU5 -0.45%, NQU5 -0.45%. The market has most recently been able to look through these tariffs, is this just another dip to be added to or will their accumulation finally tell ? The market is short AUD across the board and has been using it as a proxy for tariffs and China, price action last week pointed to potential reduction of these shorts, but the CFTC data released for last week shows very little overall change.
- EUR/AUD - Friday night range 1.7731 - 1.7797, Asia is currently trading around 1.7800. The pair broke below what has been stubborn support around 1.7900 and fell away very easily as the AUD surged across the board. This rejection above 1.8000 and sharp move lower suggest this correction could have more to play out, first support 1.7650 then more importantly the 1.7450 area. Resistance is now back towards 1.7850/7900.
- GBP/AUD - Friday night range 2.0495 - 2.0610, Asia is trading around 2.0550. The pullback is now testing the lower end of the 2.0450 - 2.1050 range, I would expect some work to be done around here initially. Bounces back towards 2.0800/50 should now see supply. A close back below 2.0450 would signal the potential for a deeper pullback.
- AUD/JPY - Friday night range 95.55 - 97.04, Asia is trading around 96.50. The pair has had a good move above 96.00 and this time looks to be building real momentum to extend higher. The market has been caught wrong-footed in both legs of this pair and price action suggests a potential move back to 99.00/100.00. Dips back to 95.50/96.00 should now be supported.
- AUD/NZD - Friday night range 1.0930 - 1.0954, the cross is dealing in Asia around 1.0960. The cross has broken out of its recent range and is now trying to push through the more pivotal 1.0950 area. Dips back to 1.0850/1.0900 should now be supported as the pair tries to build momentum to move higher.
Fig 1: GBP/AUD spot Hourly Chart
Source: MNI - Market News/Bloomberg Finance L.P
