Weekly CFTC COT Forex Positioning: Yen Got Squeezed During U.S. Elections

Net favorable bets on the Greenback increased for the seventh consecutive week. The the value of net long bets on the the Greenback stands at $22.36 billion, according to calculations done by Reuters, up from the previous week’s $20.78 billion. This is a nine-and-a-half month high. However, the latest Commitments of Traders forex positioning report from the CFTC reveals that the Greenback advanced mainly against the Japanese yen, 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 (Nov. 8 2016)

CFTC COT Forex Positioning (Nov. 8 2016)

Lemme break down the latest numbers for y’all:

After a broad-based advance during the previous week, the Greenback had a more mixed performance during the week ending on November 8, 2016. The U.S. dollar took ground from the yen, the pound, the Loonie, and the Swissy. However, the Greenback also got some pushback from the euro, the Aussie, and the Kiwi.

This CFTC forex positioning report shows how the big players were positioned during the November 8 U.S. presidential elections, but before Trump was declared the winner. There were also a bunch of other catalysts, such as the NFP report and the FOMC statement, but they probably didn’t have a lot of impact, given the Greenback’s mixed overall performance against its peers.

EUR – Bearish bias on the euro eased a bit, thanks to 15,617 short contracts on the euro getting closed out. Although this was partially offset by the loss of 7,546 long bets on the euro. The reduction of long bets on the euro was likely due to bulls taking flight because of the risk-on mood. The loss of euro shorts is a bit weird, though. All the more so, since there were lots of mostly negative mid-tier economic data, such as German industrial production slumping by 1.8%, which is a harder drop than the expected 0.4% slide.

GBP – Net bearish bias on the pound increased again after four consecutive weeks of declines. However, positioning activity shows that this was due mainly to long bets on the pound getting slashed by 10,528 contracts. This was partially offset by short pound bets getting trimmed by 3,644 contracts. The substantial unwinding of long bets on the pound, as well as the reduction in short bets, were likely due to profit-taking by the bulls and bears getting scared off in the wake of the U.K. High Court’s ruling against the government with regard to triggering Article 50 of the TEU, as well as the BOE’s decision to keep its powder dry while signaling that it now had a neutral stance on the path of monetary policy.

JPY – Large speculators reduced their net bullish bias on the yen for the second straight week. And they did this by unwinding 8,391 long contracts while simultaneously bumping up their short positions on the yen by 2,813 contracts. Positioning activity on the yen was likely driven by risk appetite. To be more specific, risk appetite made a comeback on November 7, thanks to FBI Director Comey’s announcement that the FBI won’t be charging Clinton with regard to newly-found emails. Risk-taking then persisted as expectations remained high that Clinton will easily stump the Trump during the November 8 U.S. presidential election. Of course, we now know that it was Clinton that got trumped by the Donald.

CHF – Non-commercial forex traders increased their bearish bias on the Swissy for the fifth week in a row, as the loss of 2,617 short contracts on the Swissy got overshadowed by the loss of 5,936 long bets on the Swissy. The prevalence of risk appetite that weakened demand for the safe-haven yen very likely put bearish pressure on the safe-haven Swissy as well.

AUD – Net absolute change in positioning on the Aussie was minimal. However, a closer look shows that Aussie bulls and Aussie bears were both reinforcing their positions, with Aussie longs increasing by 6,962 contracts and Aussie shorts climbing by 6,721 contracts. The risk-on vibes, plus strong economic data and the RBA’s decision not to cut rates, likely stoked demand for the higher-yielding Aussie, which is why long bets on the Aussie rose. However, short bets on the Aussie increased as well, and that was likely because of crumbling commodity prices at the time, thanks to disappointing trade numbers from China.

NZD – Positioning activity on the Kiwi was similar to the Aussie in that bulls and bears were both ramping up their bets. However, the 7,567 increase in Kiwi longs was able to easily overpower the 4,097 increase in Kiwi shorts. And this allowed the Kiwi to climb back into bullish territory after losing out to the Greenback for six straight weeks. Like the Aussie, the Kiwi is also a higher-yielding currency, so the prevalence of risk appetite likely fueled demand for the Kiwi. And since China is also one of New Zealand’s top export destinations, China’s poor trader numbers also likely encouraged Kiwi bears to come out of the woods. Although it’s also possible that the bears were opening preemptive positions ahead of the RBNZ statement, given that expectations were high that the RBNZ would cut. And we now know that the RBNZ did cut of course.

CAD – Net bearish bets on the Loonie got another boost, as long bets on the Loonie got pared by 2,873 contracts while short bets increased by 2,479 contracts. Demand for the Loonie likely got sapped by the plunge in oil prices at the time, thanks to doubts on the effectiveness of OPEC’s planned oil production cut and a massive buildup in U.S. oil inventories.

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.