Weekly CFTC COT Forex Positioning: Some Euro Shorts Bailed

Large speculators trimmed the value of their  net long bets on the Greenback from $13.66 billion to $12.81 billion during the week ending on August 2, 2016, according to calculations done by Reuters. And the latest Commitments of Traders forex positioning report from the CFTC reveals that the Greenback had a mixed performance against its peers, but lost the most against the euro.

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 (Aug. 2, 2016)

CFTC COT Forex Positioning (Aug. 2, 2016)

Lemme break down the latest numbers for y’all:

  • The Greenback had a mixed performance against its peers, losing out to some while gaining ground against others.
  • Non-commercial forex traders increased their net bearish bias on the pound. A closer look at positioning activity shows that both bulls and bears were adding to their positions. However, the increase in pound shorts from 110,391 contracts to 115,890 was able to overwhelm the increase in pound longs from 29,819 contracts to 33,375.
  • After winning out against the Greenback for seven consecutive weeks, the Swissy finally succumbed. Both Swissy bulls and Swissy shorts were actually unwinding their positions, but far more bulls were bailing out than bears.
  • Large speculators became less bullish on the Loonie. And they showed this by cutting down their Loonie longs from 44,023 contracts to 41,711 while pumping up their shorts from 20,843 contracts to 23,953.
  • The euro was still losing out to the Greenback but it was able to take back some ground from the Greenback after getting pushed back for six consecutive weeks. Both euro longs and euro shorts were culling their positions, but it was the drastic reduction in euro shorts from 221,793 contracts to 208,619 that allowed the euro to advance against the Greenback.
  • Net bullish bets on the yen increased after getting cut down for three straight weeks. The increase was due to yen longs increasing from 74,074 contracts to 76,575 and yen shorts getting culled from 39,116 contracts to 34,875.
  • Net positioning on the Kiwi and the Aussie were essentially unchanged.

The reduction in the value of net longs bets on the Greenback was very likely due to disappointment over the July 27 FOMC statement, as well as the poor advanced estimate for Q2 U.S. GDP.

The July 27 FOMC statement was a disappointment because Fed officials maintained a neutral stance and refrained from providing forward guidance, even though they acknowledged a lot of upbeat things about the economy. The advanced estimate for Q2 GDP, meanwhile, was a severe blow to rate hike expectations because it came in at 1.2%, missing expectations of a 2.6% increase by a very wide margin. And to make matters worse, Q1 GDP was revised lower from 1.1% to 0.8%.

Do note, however, that the latest positioning activity does not yet reflect the market’s reaction to the NFP report. And the much better-than-expected NFP report apparently revived rate hike expectations, according the CME Group’s FedWatch Tool.

Moving on, the Greenback had a mixed performance against its peers so demand (or lack thereof) for the other currencies was also likely being driven by their own respective catalysts.

The pound was driven deeper into the red against the Greenback likely because of speculation that the BOE will cut rates during the August 4 MPC statement. And we now know that the BOE did cut rates and more.

The Swiss franc’s trip to bearish territory, meanwhile, was likely due to souring sentiment over the Swiss economy after Credit Suisse, the second largest bank in Switzerland, was kicked off the blue-chip Euro Stoxx 50 equity index after failing to meet market cap requirements.

As for the reduction in bullish bias on the Loonie, that was very likely due to renewed worries over the oil glut after several consecutive weeks of increasing number of U.S. oil rigs sent oil lower.

There was no major catalyst for the reduction in bearish bias on the euro. But given the large reduction in euro shorts, it’s possible that some euro bears pushed the eject button after the European Banking Authority released a stress test report that European banks in the Euro Zone have shown “improved resilience,” which likely eased jitters over the Italian banking crisis.

Demand for the yen, meanwhile, was likely due to the prevalence of risk aversion at the time and the Japanese government’s approval of a ¥13.5 trillion fiscal measure. The fiscal measure allowed safe-haven demand for the yen to go unabated because new spending allocated for the year only amounted to around ¥4.6 trillion, which made investors doubt the effectiveness of the stimulus package.

The steady positioning on the Kiwi was understandable since there was no major catalyst for the Kiwi. But the same steady positioning on the Aussie was weird because of the August 2 RBA rate cut.

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.