Weekly CFTC COT Forex Positioning: More Dollar Bulls Before the NFP Slaughter

According to calculations done by Reuters, the value of net bullish bets on the Greenback rose from $3.73 billion to $4.86 billion during the week ending on May 31, 2016. However, the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback had a more mixed performance.

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 31, 2016)

CFTC COT Forex Positioning (May 31, 2016)

Lemme break down the latest numbers for y’all:

  • The Greenback had a more mixed performance.
  • Large speculators continued trimming their net bullish bets on the yen primarily by slashing their yen longs from 54,792 contracts to 46,964.
  • They were more bullish on the Loonie, though, and they showed this by pumping up their Loonie longs from 32,834 contracts to 38,753.
  • Large non-commercial forex traders are finally net bearish on the Aussie after almost three months of being net bullish. Interestingly enough, both Aussie bears and Aussie bulls were paring their positions, but it just so happens that far more bulls were getting out of their positions.
  • The Swissy looks like it’s about to follow the Aussie into the red, thanks mostly to Swissy bears increasing their short bets from 20,930 contracts to 24,162.
  • Net bullish bets on the Kiwi increased modestly, thanks to long bets on the Kiwi increasing from 30,414 to 31,919, offsetting the increase in Kiwi shorts from 25,838 to 26,415.  
  • Net short bets on the euro got reduced very slightly, but a look at how positioning went down showed that euro bulls and euro bears were both pumping up their positions, with euro longs increasing from 93,955 to 98,218 and euro shorts increasing from 131,850 to 135,872.
  • Net positioning on the pound was essentially unchanged, but both pound bulls and pound bears were actually cutting down on their positions, with pound longs getting trimmed from 38,577 to 36,546 while pound shorts got pared from 71,392 to 69,397.

Large speculators have been net bullish on the Greenback for the second consecutive week now and the continuing bullishness was very likely due to U.S. Fed Chairperson Janet Yellen’s May 27 Harvard interview.

There were many things that were discussed during that interview, but forex traders were likely focused on Yellen’s relatively more hawkish tone, especially when she said that a rate hike in the coming months “would be appropriate” so long as economic conditions are favorable for a rate hike.

Of course, this was before the June 3 release of the very disappointing May NFP report, which caused the Greenback to jump off a cliff. This also means that the new bulls likely got slaughtered when the dismal NFP report triggered a selloff.

Anyhow, the Greenback’s performance was more mixed during the week ending on May 31, so positioning was likely influenced by reports or events for the other currencies, although it’s also possible that positioning was just more mixed because of month-end positioning.

The slide in net bullish bias on the yen was very likely due to jitters over rumors that Japanese Prime Minister Shinzo Abe would delay a controversial sales tax hike for the second time, which would result in a credit rating downgrade for Japan that would scare away investors, according to most analysts and the major financial media outlets. We now know that Abe did delay the sales tax hike, but the credit rating downgrades never came and will probably never come.

Next, the increase in long bets on the Loonie was probably because of speculation that the June 2 OPEC meeting would yield positive results, which would then send oil higher and the Loonie with it. Of course, we now know that it was a dud and oil prices even stumbled a bit as a result.

Moving on, positioning on the Aussie finally became net bearish, likely because of another round of falling iron ore prices. Meanwhile, the modest increase in net bullish bets on the Kiwi was likely influenced by the results of ANZ’s business outlook survey since the jump from 6.2% to 11.3% was enough to lower the probability of an RBNZ rate cut to just 25%, according to some analysts.

As for the euro and the pound, net positioning on the two were very minimal, but the simultaneous reduction in both pound longs and pound shorts was probably because various pro-Brexit polls released on that day, which convinced some pound bulls to abandon ship while some pound shorts probably used that as an opportunity to get out of their positions. The increase in  both euro longs and euro shorts, meanwhile, was likely because of preemptive positioning ahead of the June 2 ECB monetary policy statement and presser. Of course, we also now know that was mostly a dud as well, although it did attract some euro bears.

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.