Weekly CFTC COT Forex Positioning: Greenback Under Pressure!

The Greenback’s minor recovery last week was short-lived since calculations done by Reuters shows that the value of net bullish bets on the U.S. dollar for the week ending September 15 slumped from the previous week’s $22.07 to $20.97 billion, which is the lowest level since late July of last year. Moreover, the latest Commitments of Traders forex positioning report from the CFTC shows that the U.S. dollar was losing ground to most of its forex rivals.

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. 15, 2015)

CFTC COT Forex Positioning (Sept. 15, 2015)

Lemme break down the latest numbers for y’all:

  • After six weeks of losing out to the Greenback, the Swiss franc finally made a significant comeback, with the number of non-commercial long contracts ballooning from just 5,585 last week to 19,039 for the week ending September 15.
  • The Kiwi is poised to be the next winner against the Greenback due to large speculators doubling their long positions from 11,677 to 22,462.
  • The pound lost out to the Greenback two weeks ago, but it now looks ready to challenge the Greenback again since non-commercial forex traders reduced their short positions from 61,147 to 47,825.
  • Speculative forex traders trimmed their net short bets on the Aussie and the Loonie for the third and fifth consecutive week respectively. Conversely, they increased their net bearish bias on the euro for the third consecutive week.  
  • The yen got pushed deeper into the red due to yen bulls getting squeezed out, with the total number of bullish contracts getting cut almost in half from 63,121 to 36,449.

The U.S. got a string of disappointing economic indicators just a few days before the the September 17 FOMC statement, with PPI remaining stagnant at 0.0% (-0.1% expected, 0.2% previous), retail sales only growing by 0.2% (0.3% expected, 0.7% previous), and industrial production contracting by 0.4% (-0.1% expected, 0.9% previous).

Each disappointing report dealt a hefty blow to demand for the Greenback, but it was probably their cumulative, negative effect on expectations of a September 17 rate hike that finally caused market analysts and forex traders to give up on a rate hike, which likely convinced some event junkies to unwind their bullish position on the Greenback before the actual event.

The Greenback’s forex rivals were quick to capitalize on the U.S. dollar’s misery. But it wasn’t a total disaster for the Greenback since it still managed to win out against the Japanese yen and the euro.

The euro was still probably reeling from the ECB’s more dovish stance. The Japanese yen, meanwhile, was likely suffering from a string of poor data and the BOJ’s September 15 statement wherein they were none too happy with the current state of Japan’s exports and production. The BOJ also continued to have a dour outlook for Japanese inflation, which prompted some analysts to begin calling for even more easing measures from Japan. All these painted a disappointing picture for the yen, which helps to explain why the number of yen bulls got cut almost in half.

Going back to the Greenback’s victorious forex rivals, the Swissy benefited from the Greenback’s weakness, bouts of risk aversion during the week ending September 15, and the lack of demand for the safe-haven yen. With no other desirable safe-haven currency in sight, the safe-haven Swissy became the go-to currency for most forex traders to run to during periods of uncertainty.

Moving on, the pound managed to gain some ground against the U.S. dollar, thanks to the MPC meeting minutes having a more upbeat tone. As for the comdolls, the Kiwi’s easy since Pip Diddy pointed out that a lot of forex traders were buying up the Kiwi on September 15. He attributed it to speculation that a dairy auction being held on that day would yield a positive result, and I agree with him.

The Loonie is even easier – an oil price rally. Although the BOC’s expectations that the Canadian economy will recover from the technical recession by Q3 2015 probably helped too.

The Aussie is a bit trickier. The relatively large absolute change in net positioning could either have been a reaction to Malcolm Turnbull defeating Tony Abbott or it could have been, as some analysts claim, the market correcting itself after an “overshoot” in Aussie depreciation due to the Aussie being dragged down by the Chinese stock market.

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.