Weekly CFTC COT Forex Positioning: Greenback Bulls Coming Back?

Large speculators trimmed the value of their net bearish bets on the Greenback from $6.46 billion to $6.19 billion, according to calculations done by Reuters. And the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback was able to take a large chunk of ground from the Aussie.

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 (May 10, 2016)

CFTC COT Forex Positioning (May 10, 2016)

Lemme break down the latest numbers for y’all:

  • The Greenback got pushed back by everything, with the exception of the Aussie and the Japanese yen.
  • The Aussie saw the largest net absolute change in positioning, thanks to long bets on the Aussie getting slashed substantially from 99,024 contracts to 82,774.
  • Large speculators were actually pumping up both their yen longs and yen shorts, but there were more shorts, which is why net bullish bets on the yen declined.
  • Net absolute change on the euro was modest, but a closer look at how positioning went down shows that bulls and bears were cutting down on their positions significantly, with bullish bets on the euro dropping from 113,304 contracts to 101,277 and bearish bets from 136,653 to 123,149.
  • Net absolute change on the pound was bigger when compared to the euro, but the same positioning activity was happening, with long positions on the pound declining considerably from 46,105 to 37,628 while short positions were reduced from 86,513 to 72,563.
  • Non-commercial forex traders increased their net bullish bias on the Loonie by increasing their long contracts from 39,840 to 42,040 while paring their short bets from 20,897 to 16,166.
  • Net change in positioning on the Kiwi and the Swissy were essentially unchanged, but large speculators were actually moderately boosting both their short and long positions on the two currencies.

After nine straight weeks of sliding demand, the Greenback finally saw some bullish interest during the week ending on May 10, 2016. Positioning on the Greenback was still net bearish, though.

Anyhow, demand for the Greenback was likely sparked by upbeat remarks from a few Fed officials, namely Atlanta Fed President Dennis Lockhart and San Francisco Fed President John Williams, particularly Lockhart’s statement that there’s “more probability” of a rate hike “being a real option” for the June monetary policy meeting.

The fact that the most recent NFP report wasn’t as bad as it looked on the surface probably helped to fuel Greenback demand as well, especially since New York Fed President William Dudley commented that two rate hikes within the year is still a “reasonable expectation” as he puts it, since the slowdown in job gains did not have that much of a negative impact on his own economic outlook.

Looking at the other currencies, the large decrease in net bullish bets on the Aussie was likely due to the May 6 release of the RBA’s Quarterly Statement on Monetary Policy. If y’all can still recall, the RBA announced a “surprise” rate cut on May 3, but the official press release didn’t offer any forward guidance on monetary policy. The RBA’s Quarterly Statement rectified this by stating that “The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time.” In other words, the RBA is still open to cutting further if needed.

As for the reduction in net bullish bets on the yen, that was probably because of threats of currency intervention from Japanese Finance Minister Taro Aso and Koichi Hamada, a special adviser to Prime Minister Shinzo Abe, on May 9 and May 10.

The substantial trimming of both long and short positions on the euro, meanwhile, was possibly due to lingering uncertainty on how the ECB will act moving forward, especially after ECB President Mario Draghi’s May 2 statement that low interest rates are not a problem, but that they are “the symptom of an underlying problem” in fiscal policy.

Moving on, the reduction in net bearish bets on the pound is quite interesting because economic reports released during the week ending on  May 10 weren’t very upbeat. In fact, if you look at the available economic indicators then, you may have concluded that the BOE was gonna be more dovish during their May 12 MPC policy decision.

But as it turns out, BOE officials decided to stick to their rate hike bias. It’s possible that more large speculators were anticipating that BOE officials would stick to their guns. After all, net bearish bets on the pound decreased. It’s also possible that large speculators were uncertain on what to expect from the BOE, but it just so happens that there were more pound bears who were unwinding their positions than pound bulls.

Another currency worth noting is the Loonie since non-commercial forex traders increased their Loonie longs while trimming their shorts. And this was probably due to surging oil prices at the time.

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.