Weekly CFTC COT Forex Positioning: Yen in Play?

The latest Commitments of Traders forex positioning report from the CFTC also shows that Japanese yen seems to be in play while demand for the Greenback suffered a bit. Also, calculations done by Reuters show that the value of net long positions on the Greenback slid by $1 billion to $31.8 billion for the week ending on Dec. 29. 2015.

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 (Dec. 22, 2015)

CFTC COT Forex Positioning (Dec. 29, 2015)

Lemme break down the latest numbers for y’all:

  • The Greenback lost some ground against most of its forex rivals, but it’s still winning out against most ‘em, with the Swissy being the clear exception. In fact, net bullish positions on the Swissy slightly increased due to Swissy shorts slashing their positions from 24,894 contracts to 23,272.
  • The Greenback lost the most ground to the Japanese yen, with the net bearish bets on the yen nearly getting cut in half. This was due to non-commercial forex traders trimming their yen shorts from 68,044 contracts to 62,234 while simultaneously increasing their yen longs from 37,677 contracts to 45,008.
  • The Loonie deeper into the red for the seventh consecutive week. Interestingly enough, both bulls and bears were pumping up their positions, but it just so happens that there were more bears than bulls, with bears increasing their short positions from 99,482 to 108,385. In contrast, bulls were only able to muster an increase from 43,455 contracts to 47,598.
  • Speculative forex traders not too optimistic on the pound since short contracts on the pound increased from 68,736 to 71,498 while long contracts were pared from 42,075 to 40,076.
  • Unlike the Loonie, the other comdolls fared a little better against the Greenback, with net bearish bets on both the Aussie and the Kiwi getting trimmed. And while the Aussie had a larger net absolute change, the Kiwi looks set to win out against the Greenback again after losing out to the Greenback during the week ending on Dec. 22, 2015.
  • Net absolute change on the euro was rather small, but both euro bulls and bears were unwinding their positions, with the number of long contracts on the euro decreasing to 66,973 from 70,509 while short contracts were trimmed from 231,556 to 227,523.

Greenback demand suffered a bit during the week ending on Dec. 29, 2015, likely due to end-of-the-year profit-taking. Although it’s also possible that some forex traders were beginning to doubt the sustainability of the U.S. Fed’s tightening cycle. If y’all still recall the U.S. Fed finally delivered on a highly-anticipated rate hike back in December 2015, with two possible rate hikes on the lineup for this year. But the 2015 oil slump and some economic reports, such as Q3 U.S. GDP only growing by 2.0% (+3.9% back in Q2), were probably weighing-in on the minds of forex traders.

Speaking of the 2015 oil slump, oil was in decline during the week ending on Dec. 29, 2015, which helps to explain the slumping demand for the Loonie. And the lower oil prices, together with jitters over Chinese economic data that came out at the time, caused risk aversion to engulf the global equities market.

Incidentally, the prevailing risk-off sentiment was probably the main reason why demand for the Japanese yen and the Swissy was robust since both currencies are considered safe-haven currencies. The Japanese yen, in particular, was in demand and given the global equity slump this week, we’ll probably see demand for the yen pick up some more in the next Commitments of Traders forex positioning report from the CFTC.

Moving on, demand for the pound was probably getting slammed by a myriad of mostly negative economic reports that came out at the time. Public sector net borrowing for the November period, for example, increased by £13.6 billion, which is higher than the previous month’s £6.7 billion and the previous year’s £12.1 billion, highlighting the huge hole in the U.K. budget deficit. Also, U.K. Q3 GDP only grew by 0.4%, which is lower than the 0.7% growth registered back in Q2.

As for the Aussie dollar, there were no top or mid-tier economic reports at the time, but iron ore, which is to Australia what oil is to Canada, was staging a recovery at the time, which is good for Australia and the Aussie. Although it’s also possible that longer-term forex traders were just covering their shorts. After all, the Aussie was down for most the year, and the number of short contracts on the Aussie was slashed from 69,976 to 62,311.

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.