Weekly CFTC COT Forex Positioning: Greenback Falls Back

After  seven consecutive weeks of increases, the value of net long bets on the the Greenback finally took a hit, falling from $22.36 billion to $20.87 billion, according to calculations done by Reuters. And the latest Commitments of Traders forex positioning report from the CFTC reveals that the slide in Greenback demand was pretty broad-based. The Greenback still managed to take a large chunk of ground from the yen, though.

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. 15 2016)

CFTC COT Forex Positioning (Nov. 15 2016)

Lemme break down the latest numbers for y’all:

Other than the Japanese yen and the Kiwi dollar, the Greenback lost ground to its forex rivals. The slip in Greenback demand is therefore pretty broad-based. However, the COT report also shows that most of the Greenback’s losses were against the euro and the pound.

The latest COT forex positioning report shows net positioning after Trump was hailed as the president-elect. And interestingly enough, positioning activity by the large players, with the exception of the yen and the pound, is at odds with how the Greenback actually fared against its forex rivals, given that the Greenback actually strengthened for the most part.

EUR – Bearish bias on the euro eased even further, thanks to the unwinding of 7,454 short contracts and the addition of 2,678 fresh longs on the euro. The euro actually depreciated across the board during the week ending on November 15. And the euro’s fall was attributed by market analysts to the belief that Trump’s victory and Brexit is a sign that populist, anti-establishment movements are gaining ground. This caused uncertainty in continental Europe due to the perceived increase in the possibility of a Frexit or an Italeave, which is considered net bearish for the euro. Net positioning on the euro is therefore kinda weird. All the more so, since many German economic reports, which were released at the time, failed to meet expectations. Although it is possible that the unwinding of euro shorts was due to profit-taking. After all, large speculators have been net short on the Euro since May 2014.

GBP – The same positioning activity occurred on the pound, with pound shorts falling by 8.502 contracts and pound longs increasing by 1,030 contracts. Positioning activity on the pound makes more sense, since the current narrative that a Trump victory is bad for the euro is actually deemed good for the pound, since market players are now more focused on uncertainty in the Euro Zone, which reduces bearish pressure on the pound brought about by Brexit-related uncertainty. Other than that, BOE Governor Mark Carney and other top BOE officials testified before the U.K. Treasury Committee on November 15, and Carney emphasized the BOE’s neutral monetary policy bias (emphasis mine):

What we have now is a neutral bias so we’ve got to a position where we think the stance, the unanimous view of members of the MPC is that the stance on monetary policy is appropriate, we’re still in a position of uncertainty there’s reasons why the economy could turn out stronger, inflation higher or the opposite, there’s risks on both sides so rates could go up they could go down – so it’s a neutral bias, we’re about as explicit as that.”

JPY – Non-commercial forex traders reduced their net bullish bias on the yen for the third consecutive week. For the most recent week, they did it by slashing their long yen bets by 5,534 contracts while pumping up their short yen bets by 5,746 contracts. Positioning activity on the yen was likely driven by speculation that the surge in bond yields would finally force the BOJ to act in order to meet its monetary policy objective of keeping the yields of Japanese government bonds (JGBs) at around 0%. Of course, we now known that the BOJ did act by buying up an unlimited amount of JGBs, or the BOJ tried to at least.

CHF – Large speculators slightly reduced their bearish bias on the Swissy by paring their Swissy shorts by 898 contracts while bumping up their Swissy longs by 199 contracts. There were no clear catalysts for the reduction in bearish bias on the Swissy, though.

AUD – Net absolute change in positioning on the Aussie dollar was very small. A closer look at positioning activity shows that bulls very drastically reduced their bets by 14,689 contracts. It just so happens that bears also drastically reduced their positions by 15,099 contracts. The very drastic unwinding in both Aussie longs and Aussie shorts was likely a reaction to the very drastic slump in iron ore prices, which started on November 15. The slump in iron ore prices also caused the Aussie dollar to slide, and shorts probably used that to unwind their bets while the bulls got spooked out of their positions.

NZD – Like the Aussie, net positioning change on the Kiwi was also very small. However, a closer look reveals that bulls trimmed their long bets by 2,577 contracts while bears did the same, reducing their bets by 2,115 contracts. The reduction in bearish bets was likely due to profit-taking after the RBNZ slashed the OCR from 2.00% to 1.75%. The increase in Kiwi bulls, meanwhile, was possibly because of the most recent dairy auction, which saw the GDT price index rise for the third consecutive auction, this time by 4.5%.

CAD – After two weeks of increases, net bearish bets on the Loonie finally got reduced, thanks to the 1,443 increase in long bets on the Loonie and short bets falling by 1,270 contracts. Net bearish bias on the Swissy likely eased because of a very strong oil rally that started on November 15.

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.