Weekly CFTC COT Forex Positioning: Aussie in Play?

Demand for the Greenback continued to drop during the week ending on February 9, 2016 since the value of net long positions on the Greenback got slashed from $18.20 billion to $12.60 billion, which is the lowest figure in one-and-a-half years, according to calculations done by Reuters. Also, the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback lost some ground primarily to the euro yet again and, more surprisingly, the Aussie.

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 (Feb.  9, 2016)

CFTC COT Forex Positioning (Feb. 9, 2016)

Lemme break down the latest numbers for y’all:

  • The Greenback lost ground to most of its forex rivals, but was able to take some ground from the Swiss franc and the Kiwi.
  • Net bullish bets on the yen continued to climb, but both yen bulls and yen bearss actually cut back on their positions, with longs trimming their positions from 82,108 contracts to 75,811 while shorts slashed their bets from 44,863 contracts to 32,579.
  • The euro is still losing out to the Greenback overall, but it managed to take another large chunk of ground from the Greenback, so much so that the euro had the largest net absolute change in positioning.
  • The Aussie had the second largest net absolute change in positioning because non-commercial forex traders pumped up their bullish bets from 51,397 contracts to 62,020 while simultaneously reducing their shorts from 77,565 contracts to 69,646.
  • Large speculators reduced their bearish bias on the pound mainly by lightening up on their bearish bets from 77,755 contracts to 67,325 contracts.
  • Net bearish bets on the Loonie was reduced ever so slightly that net positioning on the the Loonie was essentially unchanged.

Economic reports that came out during the week ending on February 9, 2016 were mostly optimistic. The February 5 release of the NFP report, for example, was pretty good for the most part, so demand for the Greenback (or lack of demand to be more precise) was probably being driven by speculation that U.S. Fed Chairperson Janet Yellen would be more dovish in her February 10 testimony before the House Financial Services Committee. Of course, we now know how it went.

Risk aversion was also the prevailing risk sentiment during the period due to another round of slumping oil prices and the global equities rout at the time, which helps to explain why the low-yielding euro and the safe-haven yen were able to take even more ground from the Greenback.

Moving on, bearish bets on the pound likely got reduced because of profit-taking by pound shorts after the BOE decided to keep rates on hold unanimously. Although it’s also possible that some pound shorts were scared away when Governor Mark Carney said that the next policy move is “Absolutely” still up rather than down during the press conference that followed.

As for the large reduction in net short positions on the Aussie, that was likely being driven by rallying iron ore prices at the time, as well as the RBA’s Statement on Monetary Policy, which presented a rather upbeat outlook that Australia’s economy will continue to move away from the resource sector, driving down bets of further rate cuts anytime soon.

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.