Weekly CFTC COT Forex Positioning: U.S. Dollar Demand Slipping!

The latest Commitments of Traders forex positioning report from the CFTC shows that the U.S. dollar was losing a lot of ground to all of its forex rivals, with the Aussie being the only exception. Also, there are now three currencies that are winning out against the Greenback after the Kiwi’s victory last week. Furthermore, the value of net long positions on the Greenback sank like a rock from the previous week’s $18.97 billion to a 15-month low of $13.32 billion, according to calculations done by Reuters. Ouch!

Keep in mind that these numbers show the net positioning 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. 20, 2015)

CFTC COT Forex Positioning (Oct. 20, 2015)

Lemme break down the latest numbers for y’all:

  • The pound and the Swissy joined the Kiwi in dancing the victory dance against the U.S. dollar.
  • Among the three winners, the pound had the largest net absolute change, thanks to non-commercial forex traders trimming their bearish bets from 52,292 to 45,940 while simultaneously increasing their bullish bets from 44,765 to 53, 477.
  • The Aussie was the only currency that failed to take advantage of the Greenback’s weakness. In fact, large speculators increased their short bets on the Aussie from 75,971 contracts to 81,707.
  • The euro had the largest net absolute change among the Greenback’s forex rivals. This was largely due to speculative forex traders slashing their short contracts from 151,708 to 138,857.
  • The Japanese yen looks poised to be the next winner against the Greenback since forex trades increased their long contracts on the yen from 38,004 to 48,787.

The Greenback was already reeling from the Fed’s somewhat dovish tone in the latest FOMC meeting minutes, so a slew of poor economic readings during the week ending October 20 only helped to convince forex traders in dumping the U.S. dollar even more.

The core reading for U.S. retail sales started the downhill charge when it sank lower to -0.3%. And it certainly didn’t help that the previous +0.1% reading was downgraded to show a -0.1%. The headline reading was no better since it only saw a 0.1% rise when the consensus among forex traders and economists was a 0.2% increase. Furthermore, the previous headline reading was also downgraded from +0.2% to flat at 0.0%.

After that, U.S. headline CPI began to weigh-in on the Greenback’s forex price action when it showed a deeper dip into negative territory at -0.2% (-0.1% previous) for the month of September, which likely sparked concerns among interest rate junkies that the U.S. Fed would probably be delaying the highly-anticipated rate hike yet again.

And to top it all off, U.S. industrial production fell for the second month in September (-0.2% actual, -0.1% previous) and slack began to pick up as well since the capacity utilization rate took a slight tumble from 77.8% to 77.5%.

Moving on, the Greenback’s own weakness was the main reason why its forex rivals were able to gain some ground against it, but each currency also had their own respective catalysts. As an example, the prevailing risk-off sentiment and an unexpected jump in Switzerland’s trade surplus (CHF 3.05B actual v.s. CHF 2.51B expected, CHF 2.86B previous) probably helped to attract some Swissy bulls.

As another example, the pound probably got a lot of buyers (and chased away some sellers) when the U.K. posted a rather solid jobs report. In that report, it was shown that the jobless rate fell to 5.4% (5.5% previous), which is a five-year low. Even better, the employment rate went up to 73.6%, which is the higher ever since records began in 1971. The average earnings index also ticked higher to 3.0% (2.9% previous) and the labor force participation rate held steady at 77.9%.

As for the Aussie, the sole currency that showed weakness against the Greenback, it probably got hammered by poor economic data from China such as the 17.7% drop in imports, which could mean even less demand for Australian  exports such as iron ores. Another nasty economic data point from China was the worse-than-expected slide in Chinese headline CPI (1.6% actual v.s. 1.8% expected, 2.0% previous), which sparked renewed concerns over the slowdown in the Chinese economy.

Of course, the Greenback;s weakness was before the surprise Chinese rate cut and the ECB’s press conference came around and rejuvenated demand for the U.S. dollar as monetary policy divergence came into the fore.

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.