Weekly CFTC COT Forex Positioning: Greenback Pushed Back!

The latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback continued last week’s theme of losing ground across the board. In addition, calculations done by Reuters shows that the value of net long positions on the Greenback for the week ending on February 23, 2016 slumped from $8.31 billion to $5.75 billion. The value of net Greenback longs has been sliding non-stop for nine consecutive weeks now.

Keep in mind that the numbers below show the net positioning of non-commercial forex 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. 23, 2016)

CFTC COT Forex Positioning (Feb. 23, 2016)

Lemme break down the latest numbers for y’all:

  • The Greenback got pushed back across the board. No exceptions.
  • Large speculators pumped up their yen longs from 84,518 contracts to 92,376 contracts, allowing the yen to kick back the Greenback even further.
  • Non-commercial forex traders ramped up their net bullish bias on the Aussie mainly by increasing their long bets from 66,740 contracts to 72,523.
  • After three straight weeks of massive net absolute change in positioning, positioning on the euro suddenly grinded almost to a halt. However, a look at the details shows that euro bulls drastically slashed their bullish bets from 113,970 contracts to 107,556. The same goes for euro shorts who cut back their positions from 162,175 contracts to 154,423.
  • Net bearish bias on the Loonie was reduced further, due mainly to a reduction in short bets from 74,162 contracts to 68,427.
  • Speculative forex traders liquidated some of their short bets on the pound, trimming their shorts from 72,767 contracts to 68,547. They also did the same for the Swissy, paring Swissy shorts from 24,507 contracts to 22,534.
  • Kiwi bulls increased their bets on the Kiwi from 14,465 contracts to 15,968.

Greenback demand continued to slip during the week ending on February 23, 2016. This was most likely due to the rather cautious tone of Fed officials, as revealed in the latest FOMC minutes, which very likely caused forex traders to bet that a March rate hike was finally off the table and that a rate hike within the first half of 2016 was now highly unlikely.

Other factors which likely soured sentiment on the Greenback was dovish rhetoric from Fed officials. For example, St. Louis Fed President James Bullard, who use to be a rate hike advocate, said during his February 17 statement that he sees it as “unwise to continue a normalization strategy in an environment of declining market-based inflation expectations.” In other words, a rate hike is “unwise” given low inflation levels.

Another possible reason for the slide in Greenback demand was speculation that the February 26 release of the second estimate for Q4 2015 GDP would be revised even lower from 0.7% to a very disappointing 0.4% (we now know that it was actually better-than-expected).

Moving on, Pip Diddy pointed out in his Top Forex Market Movers for the February 15-19 period and the February 22-26 period that risk appetite was the dominant market sentiment, thanks to the global equities rally and rising oil prices. That’s probably the reason why long contracts on the higher-yielding comdolls were getting a boost. And in the Loonie’s case, not only were long positions getting pumped up, short bets on the Loonie were being slashed as well, which is why the Loonie had the largest net absolute change in positioning.

Incidentally, the prevalence of risk appetite also explains why net positioning on the euro suddenly skidded almost to a halt after several weeks of making huge gains against the Greenback. The risk-on sentiment and sliding demand for the Greenback also explains why bullish bets on the safe-haven Swissy was essentially unchanged while short bets on the Swissy were trimmed a bit, allowing the Swissy to advance against the Greenback even more.

As for the safe-haven yen, it continued to get even more buyers despite the risk-on sentiment. What’s up with that? Pip Diddy noticed this as well, and he attributed it to safe-haven flows due to uncertainty on how the EU Summit for an anti-Brexit deal will go and how a Brexit will affect the markets. Oh, if you somehow missed it, just know that the EU Summit was concluded and Cameron was able to set the date for a Brexit Referendum.

Speaking of a potential Brexit, it’s rather interesting that short bets on the pound got trimmed even though pound pairs gapped lower and continued slumping after London Mayor Boris Johnson announced that he will campaign for a Brexit. This was likely due to profit-taking.

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.