Weekly CFTC COT Forex Positioning: Greenback Still Falling Back

Bullish bets on the Greenback declined for the fifth consecutive week. The value of net long dollar positions fell from $6.34 billion to an eight-week low of $5.29 billion, according to calculations done by ReutersAnd the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback’s losses were broad-based since the Greenback lost ground to everything except the euro and the Aussie dollar.

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. 30, 2016)

CFTC COT Forex Positioning (Aug. 30, 2016)

Lemme break down the latest numbers for y’all:

  • The Greenback managed to take ground from the euro and the Aussie, but got pushed back by the rest.
  • Net bearish bets on the euro have been declining for two straight weeks, but that ended during the week ending on August 30, 2016, due to euro shorts increasing by 8,154 contracts to 190,186, easily overpowering the 2,887 increase in euro longs.
  • Net bullish bets on the Aussie got reduced very slightly, but was essentially unchanged. What’s noteworthy, though, is that this is the first reduction in net bullish bets after three straight weeks of increases. The slight reduction was due to Aussie longs and Aussie shorts getting out of their positions, with more long getting out than shorts (-579 Aussie longs vs. -388 Aussie shorts).
  • Non-commercial forex traders became even more bullish on the Swiss franc. And they showed this by increasing their long bets by 3,636 contracts to 24,557 while simultaneously paring their short positions by 2,687 contracts to 16,349.
  • There was similar positioning activity on the yen, with the main difference being the smaller increase in yen longs (+1,183 yen longs vs. -2,162 yen shorts).
  • Positioning activity on the Kiwi was also very similar, although the reduction in short bets was much smaller (+1,821 Kiwi longs vs. -950 Kiwi shorts).
  • After increasing for eight straight weeks, net bearish positions on the pound finally got reduced, thanks to pound bulls pushing up their bets by 3,798 contracts to 39,648, offsetting the 1,305 increase in pound shorts.
  • Large speculators pumped up their net favorable bets on the Loonie, but a closer look at positioning activity reveals that both bulls and bears were bailing out. It just so happens that there were far more bears abandoning ship than bulls (-3,289 Loonie longs vs. -8,955 Loonie shorts).

Interestingly enough, Fed Chair Yellen’s August 26 Jackson Hole Speech apparently was not enough to stop the value of net bullish bets on the Greenback from declining for the fifth consecutive week.

In her speech, Yellen said that “the case for an increase in the federal funds rate has strengthened in recent months.” And Fed Vice Chairman Stanley Fischer affirmed Yellen’s statement as being “consistent” with a possible September rate hike.

One interesting point that’s implied by the COT report is that large speculators weren’t betting on a very strong August  NFP report, because they would have pumped up the value of their long dollar bets otherwise. This is probably because the large players already realized that the August NFP report will likely disappoint, given the historical trends and seasonal adjustments, as pointed out by Forex Gump is his Forex Preview.

Another interesting point that can be inferred from the COT report is that the Greenback’s wonky reaction to the disappointing NFP report was possibly due to Greenback shorts unwinding from their positions, although we can’t confirm that until we get the next COT report.

Once again, the Greenback’s forex rivals were quick to take advantage of the Greenback’s lack of demand.

That doesn’t mean that the large players were on the right side of the market, though. The yen bulls and Swissy bulls who opened their new positions during the week ending on August 30, 2016 were very likely turned into roast beef because both currencies fell due to the lack of safe-haven flows, given the prevalence of risk appetite.

However, the fresh Kiwi bulls and the Kiwi shorts who decided to bail were on the right side of the market, since the risk-on vibes sent seekers of higher yield towards the Kiwi, sending it higher. All the more so, since rate cut expectations got lowered after RBNZ Governor Wheeler said in a speech that “rapid and ongoing decreases in interest rates would likely result in an unsustainable surge in growth, capacity bottlenecks, and further inflame an already seriously overheating property market.”

The fresh euro shorts as well as the new pound bulls were also on the right side of the market. It’s worth pointing out that despite almost three weeks of a sustained and broad-based pound rally, the pound bears are not giving up yet. They even ramped up their short bets on the pound, as I mentioned earlier. It just so happens that there were more bulls who jumped in than bears, which is why net bearish bets on the pound got reduced. I guess you can say that more pound bears got caught in bear traps.

As for positioning activity on the Loonie, that was probably due to the slide in oil prices after a three-week rally, which the bulls used as a chance for some profit-taking while the bears probably used that as an opportunity to get out with smaller losses.

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.