Weekly CFTC COT Forex Positioning: Pound Bulls Returned, Aussie Bulls Fled

The value of net long bets on the the U.S. dollar slid lower from $7.13 billion to $6.56 billion, according to calculations done by Reuters. This marks the second week of declining net long bets on the Greenback. However, the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback had a mixed performance since it took a large chunk of ground from the higher-yielding Aussie and Kiwi. But at the same time, the Greenback got really pushed back by 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. 20, 2016)

CFTC COT Forex Positioning (Sept. 20, 2016)

Lemme break down the latest numbers for y’all:

  • The Greenback had another mixed performance. This time, it lost ground to the pound, the yen, and the Swissy while gaining ground against the euro, the Aussie, the Kiwi, and the Loonie.
  • The Aussie lost a very large chunk of ground to the Greenback, thanks to Aussie bulls unwinding their positions by 14,591 contracts while Aussie bears pumped up their bets by 15,028 contracts.
  • After three weeks of winning out against the Greenback, the Kiwi was finally pushed back into the red again. The switch to net bearish bias on the Kiwi was due mostly to short bets on the Kiwi getting increased by 12,923 contracts.
  • Net bearish bets on the euro increased. A closer look at positioning activity shows that both euro bulls and euro bears were piling up on their respective positions. However, the 7,465 increase in euro shorts was able to overshadow the 3,915 increase in euro longs.
  • Similar positioning activity occurred on the Loonie, although the net absolute change in positioning on the Loonie was very small. Loonie longs pushed up their bets by 11,426 contracts. However, this was more than offset by the 12,181 increase in Loonie shorts.
  • The Greenback lost the most ground against the pound, thanks to longs bets on pound shooting up by 28,836 contracts. This was partially offset by the 4,701 increase in pound shorts. Large speculators have been trimming their net bearish bias on the pound for three weeks running now.
  • Non-commercial forex traders became more bullish on the Swissy. And they showed this primarily by increasing their Swissy longs by 6,428 contracts.
  • Net bullish bets on the yen increased. However, the details revealed that both yen bulls and yen bears were cutting down on their bets. The 2,962 reduction in short yen bets was more than the decrease of 1,023 long yen bets, though.  

Positioning activity was not uniform. As such, positioning activity was likely being influenced more by demand (or lack thereof) for each currency rather than demand (or lack thereof) for the Greenback. It’s also therefore implied that non-commercial forex traders had no uniform bias on the Greenback ahead of the September 21 FOMC statement.

The large build-up of short bets on both the Kiwi and the Aussie was likely due to the prevalence of risk aversion at the time. Both the Kiwi and the Aussie are higher-yielding currencies, so demand for them tends to get dampened during periods of gloomy risk sentiment.

Aside from sentiment-fueled capital flows, Australia and New Zealand also got slapped with disappointing top-tier economic reports, which also likely dampened demand for their respective currencies. New Zealand, for example, got a disappointing reading for its Q2 GDP growth (+0.9% vs. 1.1% expected, +0.9% in Q1). Australia, meanwhile, got a disappointing jobs report for August since net employment in Australia decreased for the first time in seven months, missing expectations of another increase (-3,9K vs. +15.2 expected, +26.2K previous).

Going back to risk sentiment, the prevalence of risk aversion at the time is likely the reason why for the switch to net bullish bias on the safe-haven Swissy. The yen is a safe-haven currency as well. However, a closer look at positioning activity on the yen shows that both long bets and short bets on the yen got culled. This was likely due to uncertainty on whether the BOJ will ease further during the September 21 BOJ statement. Of course, we now know that the BOJ maintained its current monetary policy, although the BOJ also revamped its framework a bit while promising that it would ease further if needed.

The risk-off mood should have also buoyed the lower-yielding euro because of its status as a funding currency. And the increase in long bets on the euro shows that there was demand for the euro. However, there was a large increase in short euro bets as well, which even overtook the increase in euro longs. The increase in euro shorts was probably because of jitters over the European banking system after the U.S. Department of Justice demanded that Deutsche Bank, Germany’s biggest bank, should pay a whopping $14 billion fine for its inappropriate selling of mortgage-backed securities.

As for the pound, the substantial increase in long bets on the pound was likely due to the BOE’s decision to refrain from easing further during the September 15 BOE MPC statement. These fresh bulls likely became roast beef, though, because the pound has been on the decline since the BOE statement, as Pip Diddy has been pointing out in his Top Forex Market Movers of the Week.

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.