Weekly CFTC COT Forex Positioning: Euro Bears Retreated

According to calculations done by Reuters, the value of net long bets on the Greenback got pared from $9.81 billion to a seven-week low of $6.34 billion. Net bullish bets on the Greenback have been falling for the fourth straight week now. Also, the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback lost out to most of its forex rivals, but lost the most ground to 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. 23, 2016)

CFTC COT Forex Positioning (Aug. 23, 2016)

Lemme break down the latest numbers for y’all:

  • The Greenback took a little more ground from the pound and the Kiwi, while getting pushed back by the rest of its forex rivals.
  • Net change in positioning on the pound was very small, but the increase in pound shorts from 130,128 contracts to 130,828 was enough to push net short bets on the pound to a record high of 94,978.
  • Net positioning on the Kiwi was pushed slightly deeper into the red. A closer look at positioning activity shows that both Kiwi bulls and bears were actually pumping up their position, with slightly more bears than bulls.
  • The Greenback lost the most ground to the euro, thanks to euro shorts getting cut down from 195,568 contracts to 182,032 and euro longs increasing from 103,060 to 105,374. Non-commercial forex traders have been unwinding their short positions for four consecutive weeks now. They’re still net bearish on the euro, though.
  • Net bullish bets on the yen increases for the fourth consecutive week. Positioning activity shows that speculators increased their yen longs from 88,273 contracts to 90,387 while simultaneously paring their yen shorts from 32,267 contracts to 30.071.
  • Large speculators became more bullish on the Loonie, and they showed this by increasing their Loonie longs from 46,118 contracts to 50,097.
  • Net positioning on the Swissy climbed back into positive territory after speculators trimmed their Swissy shorts from 21,541 contracts to 19.036 while increasing their Swissy longs from 19,996 to 20,921.
  • Both Aussie bulls and Aussie shorts were pumping up their positions, but the increase in long bets on the Aussie from 68,945 contracts to 71,011 was more than enough to overpower the increase in Aussie shorts from 27,832 contracts to 28,254.

As of the week ending on August 23, the value of net bullish bets on the Greenback has been falling for the fourth week running. And we can very likely thank the minutes of the July FOMC statement for the most recent decline.

According to the minutes, Fed officials were split on the future path of monetary policy. However, “Members generally agreed that, before taking another step in removing monetary accommodation, it was prudent to accumulate more data in order to gauge the underlying momentum in the labor market and economic activity.”

This wait-and-see attitude was quite a disappointment for interest rate junkies. All the more so since there are only three FOMC meetings left for this year. Greenback demand thereby naturally suffered. Do note that the most recent COT report reflects positioning before Fed Chair Yellen’s August 26 Jackson Hole Speech apparently revived rate hike expectations.

Aside from the Greenback’s own weakness, the prevalence of risk aversion during this period was likely the reason for the favorable positioning activity on the euro, the Swissy, and the yen.

The rather large decrease in net euro shorts is noteworthy, though, and that was likely because of weaker expectations of further easing due to the ECB’s wait-and-see attitude as revealed in the ECB meeting minutes, as well as the Euro Zone’s composite flash PMI climbing to a seven-month high of 53.3 in August despite the Brexit referendum.

Another interestingly thing is that large speculators seem to have just shrugged off Japan’s poor Q2 GDP numbers (0.0% vs. 0.2% expected, 0.5% previous) and threats of further easing in September from BOJ Kuroda. Although the yen’s price action would probably have been painful for the newer yen bulls.

The increase in net bullish bets on the Aussie and the Loonie, meanwhile, were likely respectively induced by the rally in iron ore and oil prices. However, these fresh bulls were likely roasted since both currencies were actually mostly on the back foot.

And just like in the previous week, positioning activity on the pound by the large speculators continue to go against actual price action, so the few new bears who entered during the week ending on August 23 very likely got trapped as well.

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.