Weekly CFTC COT Forex Positioning: Weak Greenback Demand Persists

Calculations done by Reuters show that speculators are now net bearish on the Greenback, with the value of positions on the U.S. dollar now at -$1.85 billion from $0.4 billion during the previous week. This is the first time that non-commercial forex traders became net short on the Greenback since the week ending on May 6, 2015. Also, the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback continued to take ground from the pound while losing out all the more to its other forex rivals.

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. 19, 2016)

CFTC COT Forex Positioning (Apr. 19, 2016)

Lemme break down the latest numbers for y’all:

  • The Greenback continued to lose ground to most of its forex rivals while winning out all the more against the pound.
  • Non-commercial forex traders increased their net bearish bets on the pound mainly by increasing their short positions from 85,158 contracts to 87,917.
  • Speculators were pumping up both their short and long positions on the euro, but there were more longs than shorts, which is why net bearish bias on the euro got reduced.
  • They did the same on the Swissy, albeit to a lesser extent since net absolute change in positioning on the Swissy was smaller.
  • Net long positions on the yen got pushed to the highest ever on record since 1992, thanks to yen longs increasing their bets from 100,120 contracts to 105,710.
  • Speculative traders are still very bullish on the Aussie since they reduced their Aussie shorts from 55,646 contracts to 53,366 while simultaneously increasing their Aussie longs from 90,768 contracts to 97,472.
  • They had the same positioning activity (but to a lesser extent) on the Loonie.
  • The Kiwi saw a small net increase in net bullish bias, thanks to long positions on the Kiwi getting bumped up to 22,674 contracts from 21,472.

Demand for the Greenback has continued to slide for the seventh straight week now, as of the week ending on April 19, 2016, so much so that non-commercial forex traders are now net bearish on the Greenback.

The weak Greenback demand was probably sustained by expectations that the Fed will not be hiking rates in the upcoming April FOMC statement since the minutes for the March FOMC meeting already revealed that “several” FOMC members were not too keen on an April rate hike.

It also probably helped (the Greenback bears) that U.S. economic reports during the week ending on April 19, 2016 were mostly poor. Retail sales in March, for example, fell by 0.3%, missing expectations that it will grow by 0.1% while also fueling expectations that the contraction in retail sales will cause Q1 2016 GDP to grow at a slower pace. The CPI reading for March also missed expectations since it came in at 0.1% (0.2% expected, -0.2% previous). Also, building permits and housing starts both failed to meet their respective consensus readings, which implied that the construction industry may be losing momentum.

As usual, the Greenback’s forex rivals had no qualms about taking advantage of the Greenback’s weakness, although positioning on the other currencies were being driven by other factors as well.

Take the yen, the euro, and the Swissy, for instance. The yen and the Swissy are considered safe-havens while the euro is a lower-yielding currency. And since risk appetite was the dominant sentiment during the week ending on April 19, 2016, it is therefore natural that bearish bets on these currencies are gonna increase. Although in the case of the euro, speculators were also probably, uh, speculating that ECB’s Mario Draghi will be a bit dovish during the April 21 ECB press conference (we now know he was).

The prevalence of risk taking also likely fueled demand for the higher-yielding comdolls like the Kiwi, Loonie, and Aussie, which is why the increase in net bullish bets on the aforementioned currencies was mostly due to an increase in long bets for the said currencies rather than a reduction in short bets. Also, commodities were rallying hard at the time, which is another likely reason for the higher demand for the comdolls.

As for the pound, it continued to lose out against the Greenback. The increase in short bets on the pound during the week ending on April 19, 2016 was likely prompted by the BOE’s overall cautious tone for the April 14 MPC statement and minutes. And as usual, the pound’s weakness can also be attributed to yet another round of unwinding due to uncertainty over the June Brexit Referendum.

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.