Weekly CFTC COT Forex Positioning: Dollar Bulls Pushed Back!

Calculations done by Reuters show that the value of net long positions on the Greenback slipped back to $20.89 billion after climbing to $21.73 billion last week. In addition, the latest Commitments of Traders forex positioning report from the CFTC shows that the U.S. dollar was losing ground against the majority of its forex rivals, but it’s still winning out overall.

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 (Oct. 6, 2015)

CFTC COT Forex Positioning (Oct. 6, 2015)

Lemme break down the latest numbers for y’all:

  • The Greenback is still the one currency to rule them all, but the Kiwi almost ended that since non-commercial forex traders cut down their short positions from last week’s 24,057 to only 19,328.
  • Large speculators also trimmed their net bearish bias on the other comdolls.
  • The pound was pushed deeper into the red for the second consecutive week due to some pound bulls calling it quits, reducing the number of long contracts on the pound from 49,815 to 47,700
  • Aside from the pound, the Swissy and the euro also saw an increase in bearish bias versus the U.S. dollar.
  • Speculative forex traders pared their net short positions on the yen for the third consecutive week.

Many forex traders who have been bullish on the U.S. dollar were probably squeezed out by the latest NFP report, which printed a net increase of only 142K jobs (201K expected, 136K previous) and no growth in average hourly earnings (0.2% expected, 0.4% previous).

The NFP report also probably gave interest rate junkies the jitters as well since improvements in the labor market has been cited as one criteria for a potential rate hike by the U.S. Fed, so the poor readings may mean further delays for the highly-anticipated rate hike. And it certainly didn’t help that the readings for the Institute for Supply Management’s (ISM) non-manufacturing PMI and manufacturing PMI were both indicating slower rates of expansion.

Speaking of rate hike delays, market participants probably figured that lower borrowing costs for longer creates an equity-friendly environment, which caused global equities to keep climbing higher for the most part during the week ending October 6. Although some analysts were giving convincing arguments that the market’s “lower for longer” idea is wrong.

Improving sentiment for equities also caused sentiment for commodities to improve, sparking a rally that would ultimately end in the biggest weekly gain in three years, as Pip Diddy pointed out in his write-up for the Top Forex Market  Movers of the Week. This commodity rally and the overall risk-on sentiment were the most likely reasons as to why the high-yielding comdolls were able to take some ground from the Greenback.

The pound’s a high-yielding currency too, but it still lost out to the Greenback, probably because forex traders were still doubting the timing of a potential Q1 2016 rate hike since the manufacturing PMI for the U.K. ticked lower to a three-month low while services PMI showed the “weakest rise in activity in nearly two-and-a-half years.”

Moving on, the prevailing risk-on sentiment was certainly no friend to the low-yielding euro and the safe-haven Swissy, but both currencies also got pummeled by a string of disappointing data. The euro, in particular, got slammed by disappointing CPI, which dipped back into negative territory on a year-on-year basis, and made many forex traders and economists expect further easing moves from the ECB.

As for the yen, there were many calls for more easing measures from the BOJ, but most forex traders were probably expecting the BOJ to maintain the current monetary policy for the October 7 monetary policy statement, which helps to explain why the number of short contracts on the yen were trimmed.

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.