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The value of net long bets on the the Greenback climbed from a six-week high of $9.70 billion to a two-month high of $10.52 billion, according to calculations done by Reuters. This marks the second week of increasing Greenback demand. Moreover, the latest Commitments of Traders forex positioning report from the CFTC reveals that the Greenback took ground from most of its peers, but got rebuffed by the Aussie and the Swissy.

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 (Oct. 4, 2016)
CFTC COT Forex Positioning (Oct. 4, 2016)

Lemme break down the latest numbers for y’all:

  • The net absolute changes during the week ending on October 4, 2o16 were not as dramatic compared to the previous week.
  • The Greenback gained ground at the expense of the euro, the pound, the Kiwi dollar, the Loonie, and the yen. However, the Greenback also lost ground to the Swissy and the Aussie dollar.
  • Net short positioning on the pound increased to a record high of 97,572 contracts, thanks to the addition of 18,441 short contracts on the pound, which was able to overwhelm the 8,583 increase in pound longs.
  • Similar positioning activity happened on the euro, with the 5,142 increase in long bets on the euro getting crushed by the 11,171 fresh euro shorts.
  • Large speculators were more bearish on the Loonie. And they showed this by unwinding 1,994 Loonie longs and adding 468 Loonie shorts.
  • The Kiwi was pushed deeper into bearish territory. A closer look at positioning activity shows that bulls and bears were both cutting down their positions, but the loss of 1,935 long contracts on the Kiwi was able to more than offset the loss of 898 short contracts on the Kiwi.
  • Both yen bulls and yen shorts were adding to their positions. It just so happens that there were slightly more bears than bulls (4,751 fresh short bets vs. 4,554 fresh long bets).
  • The Aussie took a solid chunk of ground from the Greenback, thanks to long bets on the Aussie getting pumped up by 10,653 contracts, easily overrunning the 1,723 increase in Aussie shorts.
  • Non-commercial forex traders became less bearish on the Swissy. However, a closer look at positioning shows that bulls and bears were both adding to their positions, but the 6,490 increase in Swissy longs outnumbered the 3,470 increase in Swissy shorts.

The Greenback was in demand during the week ending on October 4, 2016. And that demand was likely being fueled by speculation that the September NFP report would make the case for a rate hike more compelling after ISM printed a better-than-expected manufacturing PMI reading (51.5 vs. 50.4 expected 49.4 previous) and after Cleveland Fed President Loretta Mester said in an October 4 Bloomberg interview that the November FOMC meeting should be considered “live” because rate hike prospects “remain compelling.”

Of course, we now know that the September NFP report was a miss. However, non-farm payrolls did increase by 156K, which is more than enough to keep up with working-age population growth, which is why the probability of a December rate hike actually improved, according to the CME Group’s FedWatch Tool.

Getting back on topic, demand for the Greenback was broad-based, since the Greenback managed to advance against most of its peers. However, a closer look at positioning activity, particularly on the pound and the euro, shows that large speculators were adding to their bullish bets.

The increase in bullish bets on the euro was likely due to rumors about the possibility of QE tapering before the ECB’s asset purchase program officially ends next year. The increase in bullish bets on the pound, meanwhile, was likely due to the better-than-expected PMI readings for manufacturing (55.4 vs. 52.1 expected 53.4 previous) and construction (52.3 vs. 49.1 expected, 49.2 previous). This was before the flash crash on the pound, though, so these fresh bulls likely got roasted if they didn’t punch out.

There was also a noticeably large 18,441 increase in pound shorts, though, which was enough to send net bearish bets on the pound to record highs. Aside from Greenback demand, this was likely because of British PM Theresa May’s announcement that her government would be starting the process for an actual Brexit by March 2017.

Going back to the rumors of a possible QE tapering by the ECB, Pip Diddy noted in his most recent Top Forex Market Movers of the Week that the Swissy began gaining strength based on that rumor as well, which helps to explain the increase in Swissy longs that reduced net bearish bias on the Swissy.

Moving on, both the Kiwi and the Loonie were pushed deeper into bearish territory, thanks mainly to the unwinding of long bets on both currencies. And the two comdolls can probably blame their misfortune on dairy products and oil respectively.

In the Kiwi’s case, the GDT price index dropped by 3.0%, which is the hardest slump since February 2 and the first drop in prices after four consecutive increase. The Loonie, meanwhile, likely suffered from the slide in oil prices at the time, due to reports of higher output from Libya and Iran, not to mention confirmation that Libya got an exemption from OPEC’s plan to cut oil output.

As for the Aussie, demand for the Aussie was able to overpower demand for the Greenback, likely because of the October 4 RBA policy decision and statement. You see, the RBA decided to stand pat and even sounded a bit optimistic. Price action on the Aussie dollar was mixed during the trading week ending on October 7, though, with AUD/USD closing lower for the week, so large speculators were apparently on the wrong side of the market on that one, at least during the aforementioned week.

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.