Weekly CFTC COT Forex Positioning: Greenback Fighting Back!

According to calculations from Reuters, the value of net long positions on the U.S. dollar for the week ending September 8 increased every so slightly from the previous week’s $21.61 billion to $22.07 billion, which marks the first ever increase in bullish bets after four weeks. The latest Commitments of Traders forex positioning report from the CFTC also showed that the U.S. dollar had a mixed performance again, winning out against some of its forex rivals while losing out to others.

Keep in mind that these numbers show the net positioning the of non-commercial traders against the U.S. dollar. If you’re feeling overwhelmed by all these figures, you might need to review our School of Pipsology lesson on How to Gauge Market Sentiment Using the COT Report in order to learn how to pinpoint potential forex market reversals.

CFTC COT Forex Positioning (Sept. 8, 2015)

CFTC COT Forex Positioning (Sept. 8, 2015)

Lemme break down the latest numbers for y’all:

  • After slightly losing out to the Greenback last week due to more bulls unwinding their positions than bears, the euro saw a surge of bearish interest that increased the number of short contracts from 142,767 to 156,956.
  • Net bearish bets on the yen declined for the fourth consecutive week, but the net absolute change has been dropping significantly after peaking at 51,071 two weeks ago.
  • Non-commercial forex traders pared their long positions on the pound from 47,801 to 43,509. This is now the second week of weakness for the currency.
  • Large speculators continued to trim their net bearish bets on the Swiss franc, the Aussie, and the Loonie, but they also continued to increase their net short positions on the Kiwi.

After Federal Reserve Bank of New York President William Dudley’s statement that a September rate hike is “less compelling” effectively killed short-term demand for the Greenback, some interest rate junkies got convinced to load up on the Greenback again after Federal Reserve Bank of Atlanta President Dennis Lockhart opined that the chance for a September rate hike is “50-50 around the next meeting.”

Even more forex traders decided to buy up the Greenback after Federal Reserve Vice Chairman Stanley Fischer stated in a speech that the Fed “should not wait until inflation is back to 2 percent to begin tightening.”

Unfortunately, demand for the Greenback took a hit when non-farm payrolls only printed a 173K net increase, a significantly lower figure than the expected 215K, and the most likely reason why the value of net long bets on the U.S. dollar only increased very slightly. I guess forex traders didn’t take into account that the other labor market indicators were very positive, with average earning coming in at +0.03% (+0.02% expected, +0.02% previous) and the jobless rate shrinking down from 5.3% to 5.1%.

Moving on, Chinese equities staged a rally near the end of the week ending September 8, causing risk appetite to come back with a vengeance. This naturally dampened demand for the safe havens, namely the yen, while stoking demand for the higher-yielding currencies such as the Aussie and the Loonie. The pound and Kiwi saw a net increase in bearish bets, however.

Forex traders were probably bearish on the Kiwi because the RBNZ was expected to cut rates again come September 10, and we now know that they did. As for the pound, it was suffering probably because U.K. construction PMI and services PMI both failed to meet the market’s expectations.

As for the euro, forex traders began to dump the euro shortly after ECB Boss of Bosses Mario Draghi announced during the post-rate decision press conference that the ECB has downgraded its growth and inflation forecasts for the euro zone. Moreover, Draghi expressed that the ECB is willing to extend its quantitative easing program beyond September 2016 “if necessary.”

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 called Trading based on Market Sentiment in the forums awaiting your participation.