Weekly CFTC COT Forex Positioning: Aussie Bulls Advanced

According to calculations done by Reuters, the value of net long bets on the Greenback jumped from $4.18 billion to $8.01 billion during the week ending on July 12, 2016.  And the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback took ground from the majority of its forex rivals but got pushed back by the comdolls, especially 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 (July 12, 2016)

CFTC COT Forex Positioning (July 12, 2016)

Lemme break down the latest numbers for y’all:

  • The Greenback took ground from the euro, the pound, the Swissy, and the yen, but retreated against the comdolls.
  • Net bearish bias on the euro increased because large speculators reduced their euro longs from 112,011 contracts to 107,635 while simultaneously ramping up their euro shorts from 187,338 contracts to 195,295.
  • There was similar positioning activity on the pound, since pound longs were pared from 45,746 contracts to 39,999 while pound shorts were increased from 94,777 contracts to 100,066.
  • Net bullish bets on the Japanese yen got reduced substantially, thanks mainly to yen shorts getting pumped up from 23,469 contracts to 37,819.
  • Non-commercial forex traders increased their short bets on the Swissy from 13,796 contracts to 16,612, reducing net bullish bets on the Swissy.
  • The Aussie advanced against the Greenback and took significant ground, thanks primarily to a large increase in long bets on the Aussie from 33,794 contracts to 45,938.
  • The Loonie also took some ground from the Greenback, due mainly to short bets on the Loonie getting slashed from 29,514 contracts to 22,788.
  • After four straight weeks in bearish territory, net positioning on the Kiwi finally turned bullish, thanks to a reduction in Kiwi shorts from 32,009 contracts to 30,683 and an increase in Kiwi longs from 30,606 contracts to 31,694.

Demand for the Greenback was likely due to the June NFP report, which showed that non-farm employment saw a bigger-than-expected net increase (287K vs. 175K expected, 11K previous). The NFP report was actually rather mixed, since other employment indicators disappointed, mainly the jobless rate climbing to 4.9% (4.8% expected, 4.7% previous) and wages growing below consensus (0.1% vs. 0.2% expected, 0.2% previous).

Having said that, and also taking into account the fact that demand for the Greenback was not broad-based, it is also likely that positioning activity was driven by catalysts for the Greenback’s forex rivals.

The relatively large drop in net bullish bets on the yen due to an increase in short positions on the yen, for instance, was very likely due to Japanese Prime Minister Shinzo Abe’s announcement of a planned economic stimulus package.

The pound, meanwhile, was likely still reeling from the panic over the suspension of investor withdrawals by six commercial property funds, as well as the BOE’s Financial Stability report, while the euro likely suffered due to fears over Italy’s banking system.

Strangely enough, the pound was rallying hard on July 12, thanks to easing political uncertainty after Leadsom announced that she was dropping out, opening the way for Theresa May to become the next British Prime Minister. Perhaps large speculators were also waiting for the BOE MPC interest rate decision and the possibility of a rate cut? Well, we now know how that turned out (the BOE maintained its monetary policy).

Moving on, the large increase in bullish bets for the Aussie was probably because of the RBA’s decision to keep rates steady, as well as the prevalence of risk appetite and the strong commodities rally at the time. And the same risk-on mood and commodities rally likely fueled demand for the Kiwi and the Loonie as well, although the Loonie likely got a boost from speculation ahead of the BOC’s policy decision. Many Kiwi bulls were likely trapped when the Kiwi slumped hard after the RBNZ unexpectedly announced on July 14 that it will release an unscheduled economic assessment on July 21, which apparently reignited rate cut expectations.

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.