Weekly CFTC COT Forex Positioning: More Greenback Bulls Came Out to Play

The value of net long bets on the Greenback rose from $24.17 billion to $25.03 billion during the week ending on January 3, according to calculations done by Reuters. And the latest Commitments of Traders forex positioning report from the CFTC reveals that the Greenback took ground from all its rivals but got some push-back from the yen, surprisingly enough.

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.

COT Report Net Positioning

And here is how positioning activity played out during the week ending on January 3, 2016.

COT Positioning Activity

The Greenback advanced, sending its forex rivals deeper into net bearish territory. The sole exception was the yen, which saw a very slight decrease in net bearish bias instead.

The most recent COT report shows how the big players positioned themselves before the FOMC meeting minutes and the NFP report got released. And the broad-based demand for the Greenback was likely spurred on when ISM’s December  manufacturing PMI reading jumped from 53.2 to a two-year high of 54.7. Of course, the standard reasons for Greenback demand were likely in play as well, namely expectations of more Fed rate hikes and optimism on Trump’s planned fiscal stimulus.

Again, the COT report reflects positioning activity before the Greenback retreated after the December FOMC meeting minutes got released, only to recover before and after the December NFP report got released.

Anyhow, here are the major events for the other currencies:

EUR – After four consecutive weeks of easing their net bearish bets on the euro, large speculators decided to increase their bearish bias again. The change was very small, though, thanks to the increase in euro longs. Euro bulls were likely enticed to jump in by positive economic reports, namely upbeat PMI numbers for the major Euro Zone economies, as well as inflation reports that pointed to higher inflation in the Euro Zone. And we now know that inflation in the Euro Zone increased by 1.1% year-on-year in December, which is the fastest increase since September 2013.

GBP – There was a large increase in short bets on the pound. Aside from Greenback demand at the expense of the pound, pound bears were also likely encouraged to pounce by the resignation of  the UK’s EU ambassador, Sir Ivan Rogers. All the more so, given that Rogers’ leaked resignation letter lambasted Theresa May’s government as having “ill-founded arguments and muddled thinking” after saying that the government still doesn’t have any objectives for negotiating a Brexit deal.

There was also a moderate increase in long bets on the pound, likely because of the UK’s December manufacturing PMI coming in at 56.1, a 30-month high.

JPY – After getting pushed back for nine consecutive weeks, the yen finally did a little pushing of its own. However, the yen’s push-back was more of a soft tap, since net change in positioning in favor of the yen was barely noticeable. Anyhow,  the reduction in both long and short bets on the safe-haven yen was likely due to yen longs chickening out and and short-covering by the bears due to the prevalence of risk appetite at the time.

CHF – The Swissy was pushed deeper into bearish territory. However, instead of the increase in short bets, it was the unwinding of Swissy longs that’s to blame. Like the yen, the reduction of long bets on the Swissy was likely due to the risk-friendly environment at the time.

AUD – Net bearish bias on the Aussie increased after large speculators became net bearish on the Aussie during the previous week. There was an increase in Aussie longs, very likely because of the commodities rally at the time, which was attributed by market analysts to China’s upbeat manufacturing PMI, as well as expectations that Trump’s fiscal stimulus plans, which include infrastructure, will cause demand for commodities to rise, especially industrial metals.

However, the increase in short bets was much larger. There’s no clear reason why, although yuan weakness was a likely factor, since a weaker Chinese yuan means that Australian exports are less competitive in China, Australia’s main export destination. Of course, this was before the yuan surged amidst allegations of intervention by the Chinese government.

Interestingly enough, the Aussie was the second strongest currency by the end of the January 2-6 trading week, so some of the large speculators likely got burned.

NZD – Positioning activity on the Kiwi was similar to the Aussie, albeit substantially more muted. The same dynamics were also likely in play, although the minimal positioning activity during the week indicates a lack of interest on the currency.

CAD – After drastically reducing their net bearish bets on the Loonie, non-commercial forex traders moderately pumped up their net bearish bets again. The increase in Loonie bulls likely got prompted by Canada’s manufacturing PMI rising to a two-year high of 51.8. The larger increase in Loonie shorts, meanwhile, was very likely because of the plunge in oil prices at the time.

Like the Aussie, the Loonie was one of the best performing currencies by the end of the January 2-6 trading week. In fact, the Loonie was THE best performing currency, so some large speculators also got roasted as well.

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.