Weekly CFTC COT Forex Positioning: Euro and Yen Bears in Play

The latest Commitments of Traders forex positioning report from the CFTC shows that the U.S. dollar was still losing a lot of ground to most of its forex rivals, but it also managed to score a major victory over the euro and the yen. In addition, calculations done by Reuters show that the value of net long positions on the Greenback climbed from the previous week’s $13.32 billion to to$21.6 billion, breaking three consecutive weeks of declines.

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. 27, 2015)

CFTC COT Forex Positioning (Oct. 27, 2015)

Lemme break down the latest numbers for y’all:

  • The pound, the Swiss franc, and the Kiwi are still victorious over the U.S. dollar, but large speculators lowered their net bullish bets on the pound while loading up on the Kiwi and the Swissy.
  • Aside from the Kiwi, the Greenback was also losing some ground against the remaining comdolls.
  • Non-commercial forex traders drastically increased their bearish bets on the euro from the previous week’s one-year low of 138,857 short contracts to 176,285 for the week ended October 27.
  • Speculative forex traders also acutely increased their short bets on the yen from 52,386 contracts to 70,348, but they also trimmed their long positions from 48,747 contracts to 36,437.

The increase in the value of net long positions on the U.S. dollar was likely due to the surprise Chinese rate cut on October 23 and pre-emptive positioning ahead of the October 28 FOMC statement.

As Pip Diddy reported in his Top Forex Market Movers of the Week for the trading week ending on October 23, the comdolls were getting some buyers since the Chinese rate cut was meant to stimulate growth, which could mean more demand for commodities down the road.

Aside from the comdolls, Pip Diddy also pointed out that the Greenback was getting a lot of love from forex traders due to a clear divergence in monetary policy among the major central banks, with the Bank of England (BOE) and the U.S. Federal Reserve as the only members of the rate hike club while the rest of the central banks have membership cards in the easy-money club. This monetary policy divergence also probably  convinced interest rate junkies to open pre-emptive positions ahead of the FOMC statment. 

Speaking of the easy-money club, the European Central Bank clearly showed its membership card when it announced during the October 22 press conference that it is now more open to further easing moves, including another rate cut. This clearly dovish stance convinced forex traders to frantically dump the euro across the board, and is probably the main reason why the number of short contracts on the euro increased so dramatically.

And since the Bank of Japan (BOJ) is perceived as a member (or should be a member, as some argue) of the easy-money club, the Japanese yen was under bearish pressure from forex traders well before the BOJ’s October 30 monetary policy statement. It also probably didn’t help that Japan got hit with a number of disappointing reports. Industrial activity, for example, contracted by 0.2% (-0.1% expected, -0.1% previous). Retail sales, as another example, fell by 0.2% when it was expected to increase by 0.4% (+0.8% previous).

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.