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Calculations done by Reuters show that the value of net long positions on the Greenback declined for the second consecutive week from $43.47 billion to $41.22 billion for the week ending on Dec. 8. The latest Commitments of Traders forex positioning report from the CFTC also shows that the Greenback was pushed back by most of its forex rivals.

Keep in mind that these numbers show the net positioning of non-commercial 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 (Dec. 8, 2015)
CFTC COT Forex Positioning (Dec. 8, 2015)

Lemme break down the latest numbers for y’all:

  • Non-commercial forex traders further increased their net bullish bias on the ever-defiant Kiwi by pumping up their bullish bets from 22,881 to 24,452 contracts while slashing their shorts from 18,124 to 15,571.
  • Aside from the Kiwi, the U.S. dollar is still winning out against all of its forex rivals, but lost ground to most of them. The only currencies that lost further ground to the Greenback were the Loonie and the Swiss franc.
  • After several weeks of increasing net bearish bias on the euro, large speculators finally toned down their net bearish bias mostly by trimming their euro shorts from 261,627 contracts to 252,709.
  • Speculative forex traders trimmed their net bearish bets on the Aussie for the third consecutive by slashing their short contracts on the Aussie from 94,711 to 81,275. They also did the same for the Japanese yen, cutting their yen shorts from 106,129 to 94,450.
  • Forex traders are a bit more bullish on the pound since long positions on the pound increased from 38,403 to 41,633 while shorts were eased a bit from 66,661 contracts to 65,535.

After getting a small dent on the week ending on Dec. 1, demand for the Greenback lost a solid chunk for the week ending on Dec. 8. This was most likely due to Greenback weakness, especially against the euro, in the wake of the Dec. 3 ECB rate cut and press conference. Incidentally, that’s also probably the main reason why the net bearish bets on the euro got slashed.

Going back to slipping Greenback demand, another possible factor is that forex traders, especially those who have been betting on a December rate hike, were probably unwinding their long positions on the U.S. dollar ahead of the FOMC statement. Forex Gump in his Forex Trading Guide for the Dec. 4 NFP report presented such a scenario and Pip Diddy in his Top Forex Market Movers of the Week noted that the Greenback’s reaction to the positive NFP report was subdued at best, which hints that forex traders were selling into the Greenback rally generated by the NFP report.

Moving on, net bullish positions on the Kiwi almost doubled from 4,757 to 8,881. Pip Diddy also gave the possible reason in his Top Forex Market Movers of the Week that I mentioned above since it just so happened that the Kiwi was one of the main winners during that trading week. To sum it all up, demand for the Kiwi was primarily due to a jump (14.6 vs. 10.5 previous) in ANZ’s business confidence index for New Zealand, which caused forex traders to speculate that the RBNZ won’t be cutting rates (we now know that they did). Another factor mentioned by Pip Diddy was surging risk appetite due to the positive NFP report, which pumped up demand for the high-yielding Kiwi.

The surge in risk appetite also meant surging demand for the high-yielding Aussie, but the Aussie also got a slew of positive economic reports such as Australian Q3 2015 GDP expanding at a faster rate than expected (0.9% vs. 0.7% expected, 0.3% previous). Of course, this was before the commodities carnage became clear as day, sending iron ore, a major Australian export, down to six-year lows (and dragging the Aussie with it).

Speaking of the commodities carnage, the first commodity to start showing signs of weakness was probably oil. The renewed slump in oil prices was most likely linked to the Dec. 4 OPEC meeting wherein member countries failed to put a ceiling on oil production, triggering oversupply concerns. And slumping oil prices naturally meant slumping demand for the Loonie due to Canada’s dependence on oil exports.

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.