Weekly CFTC COT Forex Positioning: Greenback Pulls Back (Again)

Large speculators resumed cutting down the value of net long bets on the U.S. dollar to $7.13 billion after increasing it for the first time in five weeks to $9.10 billion, according to calculations done by Reuters. And the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback took ground from most of its forex rivals, with the exception of the Kiwi and the pound.

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 (Sept. 13, 2016)

CFTC COT Forex Positioning (Sept. 13, 2016)

Lemme break down the latest numbers for y’all:

  • The Greenback took ground from the all the comdolls and the Swissy, but got pushed back by the euro, the pound, and the yen.
  • The Greenback suffered the most against the euro, but a closer look at positioning activity shows that euro bulls and euro bears were both bailing ship. It just so happens that euro shorts trimmed their bets by 16,696 contracts while euro bulls only pared theirs by 5,541 contracts.
  • Net bearish bets on the pound fell for the second week running, thanks to shorts bets on the pound getting reduced by 5,536 contracts and long bets getting bumped up by 1,612 contracts.
  • Large speculators became more bullish on the yen. And they showed this mainly by adding 2,172 new bullish bets.
  • Net bullish bets on the Loonie got trimmed for the second straight week. This time, the reduction was due to the 5,501 increase in Loonie shorts greatly exceeding the 1,654 increase in Loonie longs.
  • Non-commercial forex traders reduced their net long bets on the Aussie for the third consecutive week. This was done mainly by slashing their long bets on the Aussie by 3,077 contracts. This was partially offset by the unwinding of 585 short contracts on the Aussie.
  • The same positioning activity occurred on the Kiwi, with Kiwi longs getting trimmed by 2,343 contracts while Kiwi shorts lost 1,344 contracts.
  • Positioning activity on the Swissy almost unchanged. However, looking closer reveals that both Swissy longs and Swissy shorts were unwinding their positions. There were slightly more longs getting out than shorts, though.

Overall Greenback demand got sapped during the week ending on September 13 after finally picking up during the previous week. And the likely cause for that was Fed Governor Lael Brainard’s September 12 speech. You see, Brainard pointed out that inflation remained subdued and that there was still some slack in the labor market. She also stressed that there were downside risks from global events. As a result, she concluded that “the case to tighten policy preemptively is less compelling.” Quite naturally, her very dovish remarks caused rate hike expectations to dwindle, dampening demand for the Greenback in the process.

Moving on to the possible catalysts for the other currencies, the large reduction in euro shorts was likely prompted by the ECB decision to do nothing during the September 8 ECB monetary policy decision amid expectations that the ECB may ease further or at least hint that it will.

Meanwhile, the fresh bullish bets on the pound and the unwinding of pound shorts, which reduced the overall net bearish bias on  the p0und, were likely due to preemptive positioning activity ahead of the BOE decision. After all, leading indicators and hard economic data all showed that the post-referendum U.K. economy didn’t really deteriorate as horribly as predicted (and even improved on some aspects). Of course, we now know how the BOE statement turned out, particularly the BOE’s dovish forward guidance.

As for the yen, demand for the yen likely got a boost because of the prevalence of risk aversion at the time. This aversion to risk is also the likely reason why demand for both the higher-yielding Kiwi and Aussie suffered. Although commodities also got routed at the time, and that would have weighed down on demand for the comdolls as well. And one such commodity that got a beating was oil, which is likely why demand for the Loonie suffered.

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.