CFTC COT Forex Positioning Update: Are Dollar Trends Exhausted?

If you’re having trouble trying to make sense of the recent movements in the forex market, the CFTC’s Commitments of Traders report might help. As we’ve discussed in the School of Pipsology, this is an excellent tool in gauging market sentiment and predicting potential reversals.

Here are the latest figures for the week ending February 17, 2015:

COT Forex Positioning

Woah, I’m seeing red! As you’ve probably guessed from the table above, market participants retained an overall long dollar bias for the week. However, comparing the other week’s net positions to the latest one reveals that traders actually trimmed their bullish dollar bets, particularly against the euro and the pound.

The episode finale of the Greek debt drama – well, at least for this season – explains the reduction in euro shorts, as it turned out to be a happy ending. After all, the anti-austerity Greek government managed to convince its EU creditors to grant a four-month bailout extension, which buys them time to implement economic reforms and hopefully be in a better position to meet their loan obligations.

Meanwhile, the relatively optimistic tone of BOE Governor Carney and U.K. officials when it comes to assuring that the downturn in inflation would translate to stronger spending in growth has resulted to a significant decline in pound short positioning.

Scrolling further back to earlier COT reports shows that this marks the second consecutive week that investors toned down their long dollar biases, as economic analysts have noted that market watchers are starting to price in lower odds of a Fed rate hike in June. Although the January Fed statement seemed a tad hawkish, the minutes of their meeting revealed that policymakers are concerned about hiking rates too soon, as inflation remains subdued and external economic risks have popped up.

Got any other conclusions you can draw from this latest COT Report? Feel free to share your thoughts in the comments section or if you’re looking for further discussion, community member ForExchange has a lively thread, Trading based on Market Sentiment, in the forums awaiting your participation. Do you think this report hints of a long-term dollar selloff?

  • ForExchange

    Hi Forex Ninja,

    I agree with what you have written.

    If we look at it from a technical point of view, the USD rally did not have any strong retracement in its run so a little pause in the trend does not mean much to me. The concerns of a late rate hike is however a more important reason for me why a reversal should occur.

    In the thread you mentioned we analysed already many COT reports and found out something: only because we are at an extreme position, reversals do not happen always at all, it should be backed up with fundamentals. Why is that? As it is also discussed in the Babypips School, we usually take 3 years of data for a COT Report analysis. The life cycle of currencies can be longer so what might look a reversal on a 3 years COT Report reading, it might not be that significant in longer-term history. The best example is the RUB. It was already at an extreme at about 45.00, because in the last years the RUB was so much stronger. No reversal happened, and as we know it even shot up to the 78.00 area for a little period of time.

    Happy to read your great posts, they are always interesting,

    FE

    • Thanks for checking out my blog and for the informative feedback as always. As it is, we are indeed seeing extreme positioning but there is no fundamental catalyst for a top or a bottom yet. It does look like we are just at the beginning of the dollar’s bull run (started last year?) and it may be in for more gains. I’ll keep these COT updates coming then!

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  • kechel

    Yes, please keep the analysis coming Espipionage – it’s helpful, thanks!