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After sliding for nine consecutive weeks, the value of net long positions on the Greenback finally increased from $5.75 billion to $7.45 billion during the week ending on March 1, 2016, according to calculations done by Reuters. And the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback regained some of its strength mainly at the euro’s expense.

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 (Mar. 1, 2016)
CFTC COT Forex Positioning (Mar. 1, 2016)

Lemme break down the latest numbers for y’all:

  • Non-commercial forex traders are still very bullish on the yen. They even increased their long positions from 92,376 contracts to 94,070 while simultaneously paring their shorts from 39,642 contracts to 34,445.
  • Speculative forex traders also remain very bullish on the Aussie, increasing their long positions from 72,523 contracts to 76.480 while trimming their bearish bets from 62,948 contracts to 59,619.
  • As for the Kiwi and the Loonie, net bearish bets on the two other comdolls were reduced further mainly by slashing the number of short contracts on each respective currency.
  • After reducing their bearish bets on the euro for seven consecutive weeks, large speculators finally became more bearish on the euro mainly by drastically ramping up their short bets on the euro from 154,423 contracts to 172,506.  
  • The pound was pushed deeper into the red against the Greenback. Pound bulls and bears were actually both increasing their positions, but the bears were able to overpower the bulls.
  • Net positioning on the Swissy was very small, but it pushed the Swissy closer to a possible victory against the Greenback.

The better-than-expected second estimate for Q4 2015 GDP (1.0% vs. 0.4% expected, 0.7% previous) likely renewed demand for the Greenback. But considering that the Greenback lost ground to most of its forex rivals while taking ground mainly from the euro, I’m more inclined to think that Greenback demand was being fueled at the euro’s expense.

But what caused demand for the euro to slump hard? What caused large speculators to pump up their short bets on the euro? Well, that was likely the euro zone’s February period CPI taking an unexpected trip into negative territory (-0.2% vs. 0.0% expected, 0.3% previous), which fueled heavy speculation that the ECB would announce more easing measures during the upcoming March 10 monetary policy decision.

After all, ECB officials did say during the press conference for the previous ECB decision that they have their eyes on inflation and that they will review and possibly reconsider their monetary policy stance during the March huddle. In addition, ECB President Mario Draghi said in a February 15 statement that the ECB “will not hesitate to act” to act if needed.

Moving on, sentiment on the pound likely soured because of U.K. manufacturing PMI for February slipped to 50.8 (52.3 expected, 52.9 previous), which is just above the 50.0 stagnation level and a 34-month low to boot. Strangely enough, forex price action at the time was rather wonky since the pound actually doubled back after falling initially when the very disappointing report was, uh, reported.

Another likely reason for slipping pound demand was the prevalence of Brexit-related news with headlines like “Brexit could wipe 20% off the pound amid referendum turmoil, warns HSBC” that probably spooked some market players.

Looking at the other currencies, the higher-yielding commodity currencies (Aussie, Kiwi, Loonie) were probably benefiting from the commodities rally and the overall risk-on environment. The Aussie, in particular, was also likely getting some buyers due to the RBA’s March 1 decision to keep the policy rate steady at 2.00%.

As for the safe-havens, the reduction in bearish bias on the Swissy and the Japanese yen were both mainly due to speculators reducing their exposed shorts on the aforementioned currencies rather than a build up of long positions. This implies that non-commercial forex traders were just favoring the two currencies over the Greenback.

However, that doesn’t really explain why large speculators also increased their bullish bets on the yen by  1,694 contracts to 94,070. There were bouts of risk aversion despite the prevalence of risk appetite, though.

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.