Weekly CFTC COT Forex Positioning: Yen Demand Still Strong!

Calculations done by Reuters show that the value of net long positions on the Greenback for the week ending on January 12, 2016 was reduced further from $28.78 billion to $25.29 billion, which is the lowest since October 2015. Also, the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback held steady against most of its forex rivals, but noticeably got pushed back by the euro and the yen (yet again).

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 (Jan. 12, 2016)

CFTC COT Forex Positioning (Jan. 12, 2016)

Lemme break down the latest numbers for y’all:

  • The Greenback was still losing some ground to most of its forex rivals, but it was able to take back a large chunk of ground from the Aussie due to short contracts on the Aussie jumping from 59, 808 to 71,571.
  • The Japanese yen’s offensive on the Greenback is unstoppable! Bullish bets on the yen climbed from 67,471 contracts to 78,385 while short bets were slashed from 63,368 contracts to 53,119. As a result, the yen still has the largest net change in positioning.
  • The euro had the second largest net change in positioning due mostly to euro shorts drastically reducing their bets  from 227,500 contracts to 209,613.
  • The Kiwi and the Swissy were still winning out against the Greenback, but net bullish bets on the two currencies both took hits. Nothing major, though.
  • Net bearish bets on the pound was essentially unchanged, but a closer look shows that non-commercial forex traders reduced their long positions from 44,662 to 34,294 while simultaneously trimming their short positions from 75,158 to 64,815.
  • Large speculators were also cutting down on both their short and long positions on the Loonie, but more bears were paring their positions, which is why net bearish sentiment on the Loonie saw a modest reduction.

And the hits to Greenback demand just keep on coming. Demand for the Greenback deteriorated further during the week ending on Jan. 12, likely because of the global equities rout and slumping oil prices that defined this period. 33The turmoil in the global financial markets and the continuing slide in oil prices probably made forex traders further doubt the sustainability of the U.S. Fed’s tightening cycle.

And while the Jan. 6 release of the U.S. NFP report was pretty awesome on the surface (292K vs. 203K expected, 252K previous), it didn’t really pump up demand for the Greenback that much. This was probably because the details of the report show that the number of multiple jobholders jumped from 7,414K to 7,738K while wages stagnated, which implies that low-wage earners made up the bulk of the increase and/or that the economic situation of the ordinary American is deteriorating that more of them are holding multiple jobs.

This becomes more obvious when you realize that employment in professional and business services increased by 73K, but temporary help services account for 34K of the job gains and that food services and drinking places added 37K jobs (e.g. The fry cook at the nearest McDonald’s, your favorite waitress, the friendly bartender who listens to all your troubles in life).

Moving on, the prevalence of risk aversion helps to explain yet another round of massive demand for the Japanese yen, which has been the safe-haven currency of choice for most forex traders since risk aversion started to prevail during the week ending on Dec. 29, 2015. It also helps to explain why the Swissy continued to win out against the Greenback, as well as the drastic reduction in short contracts on the lower-yielding euro.

The risk-off sentiment was being fueled mostly by jitters over the Chinese economy and the rout in Chinese equities, with the disappointing Jan. 4 release of the Caixin/Markit Chinese manufacturing PMI (48.2 vs. 48.9 expected, 48.6 previous) being arguably the main catalysts for the souring of sentiment on China.  And since a very large chunk of Australia’s exports make their way to China (around 36%), sentiment on the Aussie soured a bit as well, which is likely why net bearish bets on the Aussie piled up.

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.