Weekly CFTC COT Forex Positioning: Still No Respite for the Pound

Net bullish bets on the Greenback got cut down for the third consecutive week, with the value of net long bets on the Greenback falling from $11.41 billion to $9.81 billion, according to calculations done by Reuters. However, the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback continues to have a mixed performance against its peers, with the pound still losing ground to the Greenback.

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. 16, 2016)

CFTC COT Forex Positioning (Aug. 16, 2016)

Lemme break down the latest numbers for y’all:

  • The Greenback continues to have a mixed performance against its forex rivals, taking ground from the pound, the Swissy, the Kiwi, and the Loonie while getting pushed back by the others.
  • Non-commercial forex traders increased their net bearish bets on the pound for the seventh consecutive week to a record high of 94,238. They did this mainly by increasing their short bets on the pound from 125,605 contracts to 130,128.
  • Net long bets on the Loonie got trimmed for the second consecutive week. A closer look at positioning activity shows that bulls and bears were both pumping up their bets. It just so happens that the increase in Loonie shorts from 28,281 contracts to 33,645 was able to overpower the increase in Loonie longs from 43,647 contracts to 46,118.
  • The Swissy was pushed back into bearish territory against the Greenback, thanks to an increase in Swissy shorts from 21,541 to 20,319 and a simultaneous reduction in Swissy longs from 20,426 to 19,996.
  • The Kiwi lost a little more ground to the Greenback. The net change in positioning was so small that it was essentially unchanged, however.
  • Large speculators decided to boost their net bullish bets on the yen for the third consecutive week by cutting down their shorts from 37,888 contracts to 32,267 while increasing their bullish bets from 86,719 contracts to 88,273. The yen has been winning out against the Greenback since the week ending on December 29, 2015.
  • The Aussie advanced against the Greenback, thanks to long bets on the Aussie getting ramped up from 59,586 contracts to 68,945.
  • Net short bets on the euro got cut down for the third week running. Positioning activity shows that euro bulls and euro bears were both actually unwinding their positions, but there were more bears who were abandoning ship than bulls.

The latest decline in net bullish bets on the Greenback was likely triggered by the disappointing retail sales reading for July (0.0% vs. 0.4% expected, 0.8% previous), as well as July’s headline CPI flattening out on a monthly basis. This is in addition to the drop in non-farm productivity dropped for the third consecutive quarter in Q2 (-0.5% vs. +0.5% expected), which likely eroded rate hike expectations, as well as Greenback demand.

In addition, it’s also possible that forex traders had some preemptive positioning activity ahead of the July FOMC meeting minutes. After all, the July FOMC statement turned out to be a disappointment. Of course, we now know that the minutes were a disappointment as well.

The Japanese yen, the euro, and the Aussie dollar were once again the main benefactors of the Greenback’s overall weakness. And aside from Greenback weakness, the euro and the Japanese yen were also likely getting some safe-haven demand due to the prevalence of risk aversion at the time.

Positioning activity on the Aussie is more interesting, though, since large speculators added to their net longs on the Aussie. It’s interesting because Aussie bulls were likely enticed to jump in by the commodities rally at the time, but as Pip Diddy showed in his latest Top Forex Market Movers of the Week, the Aussie was actually the weakest currency last week. So if those new Aussie bulls didn’t push the eject button during the course of the week, then they very likely got roasted.

Moving on, the Swissy was pushed back into negative territory against the Greenback thanks to an increase in short bets and a simultaneous reduction in long bets. However, there were no major catalysts that can account for this positioning activity, other than the drop in Swiss PPI (-0.1% vs. -0.2% expected, +0.1% previous). It’s worth pointing out that positioning activity by large speculators was at odds with price action, though, given that the Swissy ended up being the best-performing currency last week.

And while net bullish bets on the Loonie got reduced, both Loonie bulls and Loonie bears were actually pumping up their bets. This was likely due to speculation activity related to oil. On one hand, there were positive developments, namely the possibility that OPEC members may talk about stabilizing oil prices in the September OPEC meeting, as well as forecasts from the International Energy Agency (IEA) that the oil glut will ease as we end the year. On the other hand, there were a bunch of pessimistic report as well, namely Saudi Arabia oil output rising to record highs and the continuing increase in U.S. oil rigs.

As for the pound’s persistent lack of demand, that was probably due to BOE MPC Member Ian McCafferty’s an op-ed for the Times, since his statements that “Bank Rate can be cut further, closer to zero, and quantitative easing can be stepped up” and that “more easing is likely to be required” likely reinforced the perception over the BOE’s easing bias. Having said that, the pound was one of the stronger currencies last week, thanks to a couple of positive post-referendum economic reports, which showed that the negative impact of the Brexit vote was limited or even non-existent. The new pound bears therefore very likely got trapped.

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.