Weekly CFTC COT Forex Positioning: Greenback Falls Back!

According to calculations done by Reuters, net long positions on the U.S. dollar fell for the fourth consecutive week to a two-year low of $4.65 billion for the week ending on March 29, 2016 ($5.91 billion previous). Moreover, the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback got pushed back by its forex rivals, with the exception of the pound.

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. 29, 2016)

CFTC COT Forex Positioning (Mar. 29, 2016)

Lemme break down the latest numbers for y’all:

  • The Greenback lost some ground against most of its forex rivals, with the pound being the sole exception since non-commercial forex traders opted to increase their short bets on the pound from 76,249 contracts to 78,954.
  • Large speculators reduced their net bearish bets on the Loonie by increasing their long bets on the Loonie from 21,807 contracts to 28,146 while paring their short bets from 36,816 contracts to 34,326.
  • Net bullish bets on the Aussie increased, but a look at the positioning shows that Aussie bulls and Aussie bears were both ramping up their positions. It just so happens that there were far more Aussie bulls than bears, with Aussie long contracts increasing from 67,931 to 77,076.
  • The same positioning behavior is happening (to a lesser extent) on the Japanese yen and the Kiwi.
  • Currency speculators are now less bearish on the euro because they increased their bullish bets on the euro from 91,334 contracts to 93,726.
  • Net absolute positioning change on the Swissy was very small, but Swissy bulls and Swissy bears were actually both cutting back on their positions, with slightly more bears abandoning ship than bulls.

The broad slide in demand for the Greenback during the week ending on March 29, 2016 was very likely due to Fed Chairperson Janet Yellen’s March 29 speech. If y’all can still recall, a bunch of Fed officials were giving out rather hawkish vibes before Yellen gave her speech, with many of the said officials saying that a rate hike during the April or June meeting is a “live” possibility.

However, when it was Yellen’s turn to speak, she reiterated what was said during the March 16 FOMC statement, which is to say that Yellen was rather dovish, citing higher external risks from global developments, especially in China, that may negatively affect the U.S. economy. Yellen’s dovish speech was in stark contrast to her more hawkish peers, so expectations of another rate hike by the April meeting probably got dampened, reducing demand for the Greenback in the process.

The Greenback’s forex rivals were quick to take advantage of the Greenback’s broad weakness, with the Aussie and the Loonie being the greatest exploiters, given that the two currencies had the biggest net change in positioning during the week ending on March 29, 2016.

The higher demand for the Loonie and the Aussie, was probably due to the rampant risk-taking sparked by Yellen’s dovish tone. After all, both the Aussie and the Loonie are higher-yielding comdolls. In addition, the weakened dollar would also make globally-traded commodities relatively cheaper, and that would pump up demand for commodities, which is also good for the comdolls.

One currency that couldn’t get a break against the Greenback was the pound. This was likely due to the March 29 release of the BOE’s  Financial Policy Committee (FPC) statement since it presented a very downbeat view. Specifically, “the FPC judges that the outlook for financial stability in the United Kingdom has deteriorated since it last met in November 2015.”

The FPC also said that some of the risk that the FPC identified last year have now “crystallised” while “risks stemming from the global environment have increased.” The FPC also talked about the looming Brexit referendum and said that the possibility of a Brexit as the main domestic risk in the U.K., and that the uncertainty that the possibility of a Brexit brings may continue to weigh down on the pound and limit investment.

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.