Weekly CFTC COT Forex Positioning: Greenback Bulls Retreat (Again)

The latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback took even more ground from the pound while losing ground to everything else. Moreover, calculations done by Reuters, show that the value of net long positions on the U.S. dollar was now just $0.4 billion ($2.15 billion previous). This is the lowest reading since January 2009 and also marks the sixth consecutive week that net long positions on the Greenback continue to shrink.

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 (Apr. 12, 2016)

CFTC COT Forex Positioning (Apr. 12, 2016)

Lemme break down the latest numbers for y’all:

  • The Greenback’s performance is giving me a sense of déjà vu since the U.S. dollar continued to take ground from the pound while getting pushing back by everything else.
  • Net bearish bets on the pound increased, but a look at how positioning played out shows that both pound bulls and pound bears were reduced their positions. It just so happens that significantly more pound longs were abandoning ship than pound bears, with long positions on the pound being reduced from 39,574 contracts to 33,848 while short positions were pared from 86,060 to 85,158.
  • The opposite was playing out on the euro since more bears were getting out of their positions than bulls, with short bets on the euro down to 141,267 from 151,501. Long bets, meanwhile, were down from 98,014 contracts to 89,216.
  • Speculators increased their net bullish bets on the Aussie, but a closer look shows that both Aussie bulls and Aussie bears were pumping up their positions, with bears increasing their bets from 51,389 contracts to 55,646, but bulls were able to overwhelm them because long bets on the Aussie was substantially increased from 78,235 contracts to 90,768.
  • Non-commercial forex traders remain very bullish on the yen, further reducing their shorts from 38,057 contracts to 33,930 while increasing their longs from 98,130 to 100,120.
  • The same positioning activity happened (to a lesser extent) on the Kiwi, the Loonie, and the Swissy.

The slide in Greenback demand persisted for the sixth consecutive week during the week ending on April 12, 2016. This was likely because of the minutes for the March FOMC meeting since it revealed that “several” FOMC members “noted their concern that raising the target range as soon as April would signal a sense of urgency they did not think appropriate,” so an April rate hike is now very unlikely.

In addition, “several” FOMC members were now hesitant about hiking rates altogether, which is why there is now room for only two rate hikes in 2016 (originally had room for four).  Moreover, “many” FOMC members talked about a hypothetical scenario wherein they noted that they have no room to ease further should the economic situation worsen or significantly fail to the FOMC’s meet projections.

The overall dovish tone of the FOMC minutes and the lower probability of an April rate hike likely sapped Greenback demand, and the Greenback’s forex rivals didn’t mind taking advantage of that once again since short bets on the major currencies had yet another round of reduction, with the exception of the Aussie dollar.

As to why short bets on the Aussie dollar increased, that was likely because of the April RBA statement. Admittedly, the latest RBA statement was pretty upbeat overall, but the RBA also warned that “an appreciating exchange rate could complicate the adjustment under way in the economy,” which is to say that a strong Aussie dollar is gonna be problematic for Australia’s economy. Still, there was a moderately large increase in net bullish bets on the Aussie, probably because of surging iron ore prices at the time.

Moving on, it’s worth noting that the bulk of the net increase in bullish bets on the yen was mostly due to short bets getting culled. This was likely because of Japanese Prime Minister Shinzo Abe’s statement that countries should avoid “arbitrary intervention” and “competitive devaluation” during an interview with the Wall Street Journal. This was apparently interpreted by forex traders as a signal that Japan has no plans to intervene, which probably scared away some yen shorts.

As for the large reduction in non-commercial longs on the pound, that was probably because of speculation that the BOE would be a bit dovish during the April 14 MPC statement. After all, the United Kingdom’s economic situation ahead of the MPC statement wasn’t exactly one to sing praises about. Of course, we can’t also rule out the possibility that that another round of unwinding due to uncertainty over the June Brexit Referendum was happening.

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.