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:
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?