Weekly CFTC COT Forex Positioning: Greenback Demand Still Strong!

The latest Commitments of Traders forex positioning report from the CFTC shows that non-commercial forex traders stepped up their net bearish bets on most of the Greenback’s forex rivals. Even the defiant Kiwi took a hit. The Japanese yen and the Aussie were able to take back some ground from the Greenback, however.

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 (Nov. 24, 2015)

CFTC COT Forex Positioning (Nov. 24, 2015)

Lemme break down the latest numbers for y’all:

  • The Greenback continued to dominate against most of its forex rivals, but the Kiwi remained resolute against the Greenback’s domination. Forex traders increased their short positions on the Kiwi from 16,971 contracts to 18, 593, however, resulting in a decrease in net bullish bias for the Kiwi.
  • Non-commercial forex traders further increased their bearish bias on the euro by pumping up their short contracts from the previous week’s 243,075 to 251,780. They also slashed their long positions from 78,898 contracts to to 76,296.
  • The Greenback was also able to take more ground from the pound, the Swiss franc, and the Loonie due to large speculators increasing their short positions on the aforementioned currencies while simultaneously trimming their long positions.
  • The Aussie and the Japanese yen were going against the tide because forex traders increased their long contracts on the Aussie from 44,933 to 46,037 while decreasing their shorts from 111,397 to 103,182. As for the yen, speculators trimmed their bullish bets from 34,475 to 30,277 but they also drastically cut down their short bets from 113,086 to 107,613.

The Greenback has been in demand for the fifth consecutive week now (at the expense of most of its forex rivals), and the most likely reason for this was the release of the FOMC minutes for the October 28 meeting, which showed that Fed officials were pretty hawkish since “Most participants anticipated that, based on their assessment of the current economic situation and their outlook for economic activity, the labor market, and inflation, these conditions could well be met by the time of the next meeting.”

True, the initial reaction to the release of the minutes was a quick sell-off of the U.S. dollar, which was likely a case of buying the rumor and selling the news. But demand for the Greenback was able to recover quickly probably because of positive rhetoric from key Fed officials. FOMC member William Dudley, for example, said that the U.S. Fed should be ready to hike rates soon. As another example, FOMC member John Williams said that there was a “strong case” for hiking rates in the upcoming December meeting.

Moving on, demand for the Kiwi remained robust, but took an arrow to the knee. The lower demand for the high-yielding Kiwi was likely due to the crushing risk aversion that prevailed from November 23 to 24, which was brought about by a slide in commodity prices and global tensions due to the downing of a Russian military jet by Turkey. Incidentally, all that risk aversion was probably one of the reasons why short bets on the safe-haven yen got slashed.

As for the rest of the Greenback’s forex rivals, they were probably getting hammered by monetary policy divergence. As an example, BOE officials testified before members of the British parliament on November 24, and they basically confirmed that the BOE was now less hawkish and therefore less likely to hike rates in 2016, which was a disappointment to forex traders, especially interest rate junkies.

In a November 20 speech, meanwhile, ECB Draghi reaffirmed the ECB’s openness to further easing if needed. In contrast, the RBA minutes revealed that RBA officials weren’t so dovish anymore. In fact, their economic outlook was rather upbeat, which probably made forex traders conclude that a December rate cut was now highly unlikely  (an 8% probability, according to some analysts) and we now know that the RBA kept rates steady.

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.