Weekly CFTC COT Forex Positioning: Greenback Demand Firming Up?

Calculations done by Reuters show that the value of net long positions on the Greenback for the week ending on January 19, 2016 was reduced very slightly from $25.29 billion to $25.03 billion. The reduction is significantly smaller when compared to the declines from the past few weeks and may imply that demand for the Greenback is beginning to firm up. Moreover, the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback continued last week’s theme by losing more ground to the euro and the yen. But on a more upbeat note, the Greenback was able to take ground from all its other forex rivals.

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. 19, 2016)

CFTC COT Forex Positioning (Jan. 19, 2016)

Lemme break down the latest numbers for y’all:

  • Bullish bets on the yen continued to build-up, increasing from 78,385 contracts to 84,485, which is the largest since February 2012.
  • The euro was still losing out to the Greenback, but net bearish bets on the euro continued to decline, due mostly to an increase in euro longs from 63,162 contracts to 69,449.
  • Large speculators pumped up their Swissy shorts from 21,160 to 24,286, which pushed the Swissy to the brink of losing out to the Greenback.
  • After two straight weeks of winning out against the Greenback, the Kiwi was finally kicked off the winner’s pedestal due to non-commercial forex traders reducing their Kiwi long positions from 17,149 contracts to 14,948 while simultaneously increasing their Kiwi shorts from 15,608 contracts to 17,892.
  • The Aussie lost another large chunk to the Greenback for the second straight week due to a drastic increase in Aussie shorts from 71,571 contracts to 81,738.
  • The Loonie was pushed deeper into the red versus the Greenback due primarily to a reduction in Loonie longs from 38,837 contracts to 33,064.
  • Bulls and bears were both pumping up their positions on the pound, but there were significantly more bears, with bears increasing their short positions from 64, 815 contracts to 76,442.

Demand for the Greenback continued to deteriorate, but the fall in net long positions on the Greenback for the week ending on January 19, 2016 was noticeably smaller when compared to the declines of the past few weeks. In addition, the Greenback had a mixed performance against its forex rivals – losing out to the safe-haven yen and the low-yielding euro while winning out over the rest. This implies that demand for the Greenback may be firming up or that doubt over the sustainability of the U.S. Fed’s tightening cycle is beginning to fade.

Speaking of the Fed’s tightening cycle, it’s also possible that non-commercial forex traders are now in wait-and-see mode, with the upcoming FOMC statement in sight. Although it’s also possible that profit-taking after the December FOMC statement is finally over.  After all, Greenback demand began to slip just before the December FOMC statement.

Moving on, the low-yielding euro and the safe-haven were able to take even more ground from the Greenback, probably because of capital flows to these two currencies due to the prevalence of risk aversion, especially in the global equities market, during the week ending on January 19.

The prevailing risk aversion was also probably the main reason why the higher-yielding comdolls (AUD, NZD, CAD) were pushed deeper into the red, or in the case of the Kiwi, finally pushed into the red. There were, of course, other factors for each currency. In the case of the Loonie, for example, demand for the Loonie probably got torpedoed by slumping oil prices during the period, and brought about by jitters over China and speculation over what Iran’s reentry into the oil market may mean for oil prices.

As for the Aussie and the Kiwi, the close trade relations of their respective economies to China (to the point of being semi-dependent), meant that they get a good beatdown from their forex rivals whenever disappointing reports from China are released. And it just so happens that China reported a lower-than-expected rise in industrial production during the December period (5.9% vs. 6.0% expected, 6.2% previous), which resulted in a slower-than-expected Q4 GDP growth (6.8% vs. 6.9% expected, 6.9% previous). This also means that China’s economy grew by 6.9% in 2015, which is below the PBoC’s 7.0% growth forecast.

And for the net increase in bearish bets on the pound, that was very most likely due to BOE Guv’nah Mark Carney’s January 19 speech wherein he said that “now is not yet the time to raise interest rates” and that “not enough cumulative progress has been made to warrant tightening policy,” which was a disappointment to interest rate junkies.

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.