Weekly CFTC COT Forex Positioning: Another Round of Greenback Weakness

The latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback lost ground to all its forex rivals, but manage to take some ground from the yen. Also, calculations done by Reuters show that the net bearish bets on the Greenback, increased from $1.85 billion to a three-year high of $4.19 billion.

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. 26, 2016)

CFTC COT Forex Positioning (Apr. 26, 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.
  • After five straight weeks of getting pushed back by the Greenback, the pound was finally able to turn the tables against the Greenback, thanks to the increase in pound longs from 32,765 contracts to 40,431.
  • Non-commercial forex traders trimmed both their euro longs and euro shorts, but the number of short contracts on the euro that were pared far outnumbered the decrease in euro longs, which is why the net bearish bias on the euro got reduced.
  • They also trimmed their yen longs and yen shorts. This time, however, the reduction in long contracts greatly exceeded that of short contracts, with the yen longs decreasing from 105,710 contracts to 97,470, which is why the net bullish bias on the yen took a tumble for the first time in six weeks.
  • Speculators did the opposite on the Swissy since Swissy bulls and Swissy bears were both ramping up their positions, but the bulls edged out the bears, resulting in a slight increase in net bullish bias.
  • Net bullish bets on the Aussie got pushed to a three-year high, thanks to a very drastic increase in Aussie longs from 97,472 contracts to 109,932 and a more moderate reduction in bearish bets on the Aussie from 53,366 contracts to 50,392.
  • The respective increases in net bullish bets on the Kiwi and the Loonie were due to a very modest decrease in short contracts on the two currencies coupled with a moderate increase in longs, with long bets on the Kiwi increasing from 22,674 contracts to 24,459 while long contracts on the Loonie got bumped up from 32,473 to 37,104.

Demand for the Greenback has been sliding for the eighth consecutive week, as of the week ending on April 26, 2016. Also, non-commercial forex traders have been net bearish on the Greenback for the second consecutive week now.

The relentless slide in Greenback demand was likely due to speculation that the Fed would sit on its hands and/or sound dovish during the April 27 FOMC statement. And we now know that the Fed did sit on its hands while maintaining a somewhat neutral tone, but with hints of dovishness because the Fed warned that Q1 2016 GDP “appears to have slowed.”

Incidentally, the April 28 release of the U.S. GDP report showed that U.S. economic growth did slow down, growing only by 0.5% quarter-on-quarter, which is below the expected 0.7% growth. It’s also very significantly weaker than Q4 2015’s 1.4% expansion, and a two-year low to boot. And it’s highly likely that speculators were betting on a slowdown before the GDP report was released because economic indicators that were available at the time were clearly pointing to a possible slowdown.

As has been the case in the past eight weeks, the Greenback’s forex rivals were quick to exploit the Greenback’s weakness, although market sentiment was also likely a driving factor on positioning since the higher-yielding comdolls (NZD, CAD, AUD) were attracting buyers as well, given the prevalence of risk-appetite at the time.

Aussie demand, in particular, was very noticeably strong, probably because of surging iron ore prices at the time. Do note, however, that this was before Australia’s CPI readings disappointed horribly on April 27 by coming in at -0.2% quarter-on-quarter instead of advancing by 0.3%, which is the first negative quarter-on-quarter headline CPI reading since Q4 2008 and was enough to bring rate cut expectations back into play.

Moving on, the pound was finally able to take some ground from the Greenback for the first time in five weeks. There were no major events or economic reports at the time, but it’s possible that this was due to unwinding of Brexit-related shorts given that the “remain” camp is now beginning to take the upper hand against the “leave” camp.

Another currency worth noting is the yen since net bullish bets on the yen finally got reduced for the first time in six weeks. This was very likely due to heavy speculation that the BOJ would introduce more easing measures during the April 28 BOJ monetary policy statement because of a widely circulated “report” from Bloomberg which claimed that the BOJ may consider a deeper cut for the negative rates on deposits, according to unnamed “people familiar with talks at the BOJ.” Of course, we now know that the BOJ didn’t introduce more easing.

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.