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Sentiment on the Greenback continued to improve during the week ending on October 31 since large players further reduced the value of their net bearish positions on the U.S. dollar falling from $8.02 billion to $3.37 billion, according to calculations done by Reuters. This marks the fifth consecutive week of improving sentiment on the Greenback.

And the latest Commitments of Traders (COT) forex positioning report from the CFTC reveals that the Greenback’s gains were still broad-based since the Greenback took even more ground from all its peers, with the exception of the pound.

And among the Greenback’s forex peers, the euro and the Loonie lost the most ground, thanks largely to Loonie and euro bulls calling it quits. Also worth noting is that large players became net bearish on the Kiwi again since the week ending on June 6, 2017.

Oh, please keep in mind that the numbers below show the net positioning of non-commercial forex traders against the U.S. dollar.

And 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.

And here is how positioning activity played out during the week ending on October 31, 2017.

Large players further pared their net bearish bias on the Greenback. And they did that by slashing their bullish positions on the Greenback’s forex rivals while simultaneously building up shorts.

And sentiment on the Greenback likely improved because of growing hopes that Trump’s tax reform plans will get passed, thanks to news that the House passed the 2018 budget blueprint, following up from the U.S. Senate’s decision to pass the 2018 budget blueprint.

As noted in the write-up for the previous COT report, the budget blueprint includes “budget reconciliation” which will make the passing of certain legislation, including Trump’s tax reforms, much more easier since the Republicans won’t have to woo the Democrats.

Moving on, demand for the Greenback may have also picked up because of the advanced Q3 U.S. GDP report since that showed that the U.S. economy grew by 3.0% quarter-on-quarter annualized, which is better than the expected 2.5% increase.

More importantly for rate hike expectations, the GDP price index, increased by  2.2%, which is much stronger than the +1.7% consensus and also happens to be the best reading in five quarters.

Speaking of rate hike expectations, it’s also possible that large players were positioning ahead of the FOMC statement in the expectation that the Fed will maintain its forward guidance and keep December rate hike expectations alive.

Of course, we now know that the Fed maintained its forward guidance that “the Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate,” which was taken to mean that the Fed is still on track for a December rate hike.

However, the most recent COT report does not yet reflect that. Also, the most recent COT report does not yet show how the large players reacted to Trump’s nomination of Powell as the next Fed Head.

Anyhow, here are the major events, reports, and other catalysts for the other currencies:

EUR

Sentiment on the euro deteriorated further, thanks mostly to euro longs abandoning ship. Although the increase in euro shorts also helped to weaken bullish sentiment on the euro.

This clearly bearish positioning activity on the euro very likely shows profit-taking by euro bulls and euro bears getting enticed to jump in, thanks to the ECB’s dovish taper during the most recent ECB statement.

As for some specifics, the ECB announced that it plans to extend its QE program by nine months starting next year but at half the current monthly pace, which are within expectations.

However, the ECB maintained its easing bias on its QE program. Moreover, the ECB emphasized that interest rates aren’t gonna be moving higher anytime soon.

GBP

After losing ground to the Greenback for three consecutive weeks, the pound was able to regain some of its lost territory, thanks to the slashing of short bets on the pound.

And the reduction in short positions on the pound very likely shows pound bears getting spooked when the U.K.’s preliminary Q3 GDP report revealed that the U.K. economy expanded by 0.4% quarter-on-quarter in Q3, which is better than the BOE’s forecast +0.3%, and caused odds for a November BOE rate hike to improve.

We now know that the BOE did hike for the first time in a decade. However, we also now know that the BOE’s forward guidance was seen as too cautious since the BOE expressed concern about Brexit and only signaled two additional 25 basis point increases in Bank Rate over the three-year forecast period.”

Do note that the COT report does not yet reflect how large players reacted to the BOE statement, however.

JPY

Yen bulls and yen bears were both trimming their respective positions. More bulls were abandoning ship, though, so net positioning on the yen became even more bearish.

Positioning on the yen likely shows yen shorts unwinding their positions and yen bulls getting spooked by the risk-on vibes  at the time, as well as the BOJ’s affirmation that it was keeping its super loose monetary policy during the recent BOJ statement.

CHF

Sentiment on the Swissy deteriorated for the seventh consecutive week. There weren’t really any negative catalysts for the Swissy, but risk appetite was the dominant sentiment at the time, especially after the ECB’s cautious forward guidance. And that may have soured sentiment on the Swissy.

Also, since the SNB has no plans to change its monetary policy, including negative rates, while odds for a December Fed rate hike rose, it’s also possible that positioning activity on the Swissy was driven by the monetary policy divergence between the SNB and the Fed.  

AUD

Net bullish bias on the Aussie continued to ease as Aussie bears bumped up their positions while Aussie bulls very slightly trimmed theirs.

And this bearish positioning activity on the Aussie was likely due to Australia Q3 CPI report since Q3 CPI came in at +0.6% quarter-on-quarter (+0.8% expected) and 1.8% year-on-year (+2.0% expected), which strengthens the case that the RBA won’t be budging from its current monetary policy anytime soon.

Also, gold was sliding at the time which may have dampened demand for the Aussie as well.

NZD

Kiwi bulls and Kiwi bears both reinforced their respective positions. There were far more fresh bears, though, which is why sentiment on the Kiwi deteriorated and finally became net bearish for the first time since the week ending on June 6, 2017.

The increase in bearish bets on the Kiwi very likely shows continued disappointment over NZF’s choice to back Labour in order to form a government.

In addition, the increase in bearish bets may be due to lingering worries that the RBNZ may be forced to delay its path to hiking because of new NZ Prime Minister Adern’s October 24 speech wherein she said that her newly-formed government has “been looking at changing the objectives set out in the Reserve Bank Act” to “possibly include employment.”

As for the slight increase in Kiwi longs, that was likely a reaction to  New Zealand’s Q3 jobs report since the jobs report showed that the labor cost index increased by 1.9% year-on-year, which is the best reading since Q3 2012 and is already beating the RBNZ’s 2017 forecast of +1.5%.

CAD

Net bullish bias on the Loonie got eroded significantly due to the substantial culling of Loonie longs and the less substantial increase in Loonie shorts.

And the rather large reduction in Loonie longs and the increase in Loonie shorts very likely show how large players reacted to the BOC statement since the BOC warned about a potential slowdown in growth in the second half of 2017.

More importantly, BOC governor Stephen Poloz blatantly stated that the BOC now has a neutral monetary policy bias when he said during the BOC Presser that “There’s nothing automatic, no predetermined path for interest rates,” which is a rather disappointing turn of events, given that the BOC delivered back-to-back rate hikes previously.

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.