Weekly CFTC COT Forex Positioning: Greenback Advances at the Euro’s Expense

Large speculators increased their net bullish bets on the Greenback for the fifth week running, with the value of net long bets on the the Greenback climbing from $18.44 billion to $18.81 billion, according to calculations done by Reuters. The $0.37 billion increase is much milder than the previous week’s $3.72 billion jump. Moreover, the latest Commitments of Traders forex positioning report from the CFTC reveals that the Greenback advanced mainly at the expense of the euro, but had a mixed performance overall.

Oh, please 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 (Oct. 25, 2016)

CFTC COT Forex Positioning (Oct. 25, 2016)

Lemme break down the latest numbers for y’all:

The Greenback had a mixed performance against its peers, taking ground from the euro, the Swissy, and the Kiwi, while losing ground to the pound, the yen, the Aussie dollar, and the Loonie.

There were positive data and events for the Greenback during the week ending on October 25, such as upbeat rhetoric from Fed officials and Markit’s PMI reading rising from 51.5 to a 12-month high of 53.2 in October. However, given the Greenback’s mixed performance, it’s probably safe to say that catalysts for the other currencies were the main drivers of positioning activity, rather than any inherent demand (or lack thereof) for the Greenback.

EUR – Euro bulls and euro bears were both pumping up their positions, but there were just far more longs than shorts, which is why the euro was pushed deeper into bearish territory (14,700 fresh euro longs vs. 29,288 fresh euro shorts). The large increase in both euro longs and euro shorts was very likely due to the ECB’s ambiguous statements during the October 20 ECB statement. There were far more shorts than longs, though, probably because ECB Draghi did say that “an abrupt ending to bond purchases, I think, is unlikely,” and that a sudden stop to asset purchases “is not present in anybody’s mind.” This implied openness to extending its asset purchases (or a reluctance to end it at least) was reinforced during Draghi’s October 25 speech when he said that: “we remain committed to preserving the very substantial degree of monetary accommodation which is necessary to secure a sustained convergence of inflation towards levels below, but close to, 2% over the medium term.”

GBP – Net bearish bias on the pound eased further, thanks to the 11,026 increase in pound longs, which was able to easily overpower the 3,430 rise in pound shorts. The larger increase in pound longs was likely because of the mostly positive economic data ahead of BOE Governor Carney’s October 25 testimony before the House of Lords Economic Affairs Committee, with the higher-than-expected annual increase in CPI for the month of September and the positive jobs data for October being the most notable ones. Going back to Carney’s testimony, it was considered hawkish overall, especially the part where he said that: “The balance of supply and demand in the exchange rate can shift, and we’re not a targeter of the exchange rate, we’re a targeter of inflation. But we’re not indifferent to the exchange rate. And we have seen in recent weeks fairly substantial moves in the exchange rate that to some extent appear to be related to an adjustment in market perceptions to that balance of supply and demand in the future,” adding that the market’s “perception of where the supply potential of this economy will be in the next few years… that perception may well be mistaken.”

JPY – Large speculators became even more bullish on the Japanese yen. And they showed this by adding 7,419 long contracts on the yen while ever so slightly paring their short bets by 185 contracts. This positioning activity is kinda weird, given that risk appetite was the prevalent risk sentiment at the time. Net long bets on the yen were cut by nearly by half from 68,695 to 36,991 during the previous week, though, so it’s possible that we’re just seeing some repositioning activity after the rather large unwinding.

CHF – Net bearish bias on the Swissy increased, pulling the Swissy deeper into the red. And a closer look at positioning activity shows that this was due to the 2,822 increase in short bets on the Swissy, which more than offset the small 499 increase in long bets on the Swissy. The increase in net bearish bias on the Swissy was probably because of the prevalence of risk-taking at the time.

AUD – Non-commercial forex traders added to their net long bets on the Aussie, due mainly to the 2,627 increase in long contracts on the Aussie, which was partially offset by the additional 684 short Aussie bets. The influx of fresh Aussie bulls was very likely due to the explosion in iron ore prices on October 25, which is good for Australian mining companies, and hence, the overall Australian economy.

NZD – The net absolute change in positioning on the Kiwi was very small, but it was enough to prod the Kiwi deeper into bearish territory. A closer look at positioning activity also reveals very limited changes, with longs getting reduced by 9 contracts and shorts increasing by 258 contracts. There was very little data or news events for the Kiwi during the period, so the lack of activity is quite understandable.

CAD – Like the Kiwi, the net absolute change in positioning on the Loonie was also very small, but positioning activity was a different story altogether, since Loonie bulls increased their long bets by 9,595 contracts while Loonie shorts tried to match it (but failed), increasing their bets only by 8,621 contracts. The increase in Loonie longs was probably because of reduced rate cut expectations after BOC Governor Poloz said during his testimony before the House of Commons that “our best plan right now, we think, is to wait for the next 18 months or so.” The rise in Loonie shorts, meanwhile, was likely because of sinking oil prices at the time.

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 calledTrading based on Market Sentiment in the forums awaiting your participation.