Weekly CFTC COT Forex Positioning: Sentiment on the Pound Flips!

The latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback had another mixed performance during the week ending on March 22, 2016. In addition, there was a drastic increase in net bearish positioning on the pound after a very substantial decrease during the week ending on March 15, 2015.

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 (Mar. 22, 2016)

CFTC COT Forex Positioning (Mar. 22, 2016)

Lemme break down the latest numbers for y’all:

  • There was a very drastic increase in net bearish bets on the pound, but a look at the actual change in positioning shows that this was due to pound longs slashing their positions from 62,876 contracts to 38,526. Short positions on the pound only saw very minimal change.
  • The opposite can be said for the euro since the drastic decrease in net bearish bets on the euro was due to euro shorts cutting down their positions from 167,908 contracts to 157,387.
  • After paring their net bullish bets on the yen during the week ending on March 15, 2016, currency speculators decided to boost their net bullish bets on the yen yet again by increasing their long positions from 79,426 contracts to 82,812 and decreasing their short positions from 33,937 contracts to 29,466.
  • Non-commercial forex traders are now even more bullish on the Aussie, and they showed this mainly by pumping up their bullish bets on the Aussie from 61,544 contracts to 67,931.
  • Positioning on the Loonie only showed a net change of 1,817, but the details shows that Loonie bulls and Loonie bears were both substantially unwinding on their positions, with long bets on the Loonie getting slashed from 31,584 contracts to 21,807 and short bets getting reduced from 48,410 contracts to 36,816.
  • The same behavior can also be seen (to a lesser degree) on the positioning for the Kiwi and the Swissy.

The very large decrease in long bets on the pound (after a drastic increase the previous week) that very likely due to the BOE’s more balanced tone during the March 17 MPC rate decision wherein BOE officials presented a more balanced tone.

If y’all can still recall, the U.K. was getting a bunch of positive top-tier economic reports in the run-up to MPC decision. Manufacturing production in the U.K., for example, was up by 0.7% in January, breaking three straight months of declines. In addition, the jobs report for the three months to January 2016 was very upbeat, with the jobless rate holding steady at 5.1% and wages growing by 2.1% (2.0% expected, 1.9% previous).

The positive economic reports probably fueled speculation that the BOE was gonna be a bit more hawkish during the March 17 MPC rate decision, which is likely why bullish bets on the pound ramped up during the week ending on March 15. However, when the BOE came out with a more neutral tone, speculators probably got disappointed and began abandoning ship.

Another likely reason for the substantial decrease in long positions on the pound was the March 22 terrorist attack in Brussels since that apparently brought Brexit concerns back into the fore. Specifically, it increased the odds for a Brexit.

The terrorist attack in Brussels also (quite naturally) caused risk aversion to dominate the European markets. And the biggest beneficiary of that was likely the Japanese yen. Large speculators who increased their long bets on the yen probably ended up losing, though, given that forex price action for yen pairs during the trading week between March 21 and March 25 was mostly about the yen’s weakness, especially against the Greenback due to hawkish comments from Fed officials.

Going back to the terrorist attack in Brussels, euro shorts also probably used the risk aversion triggered by the terrorist attack as an opportunity to unwind some of their positions.

As for the increase in net bullish positioning on the Aussie, that was likely due to climbing iron ore prices, which is great for Australia (and the Aussie) given that iron ore accounts for around 25% or so of Australia’s total exports.

Another possible reason for the Aussie demand was RBA Governor Glenn Stevens’ speech to the ASIC annual forum, which had no jawboning of the Aussie and was even giving a rather upbeat vibe, with Stevens concluding that “[t]he local economy has been improving and the financial system overall gaining in resilience, albeit with a few pockets to watch. Given that and a reasonable track record of adapting to shocks, we have some grounds for confidence in our capacity to negotiate whatever lies ahead.”

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.