Large speculators continue to be bullish on the Greenback, boosting the value of net long bets on the Greenback from $22.25 billion to a 10-month high of $24.82 billion, according to calculations done by Reuters. And the latest Commitments of Traders forex positioning report from the CFTC reveals that the Greenback advanced against most of its peers, taking the most ground from the Japanese yen.
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.
Lemme break down the latest numbers for y’all:
Demand for the Greenback during the week ending on November 29, 2016 was apparently broad-based, since the Greenback took ground from most of its peers, with the euro being the only exception.
The broad-based demand for the Greenback was likely spurred by a number of positive factors, with the most notable ones being the very upbeat numbers for U.S. durable goods orders, the relatively hawkish minutes of the November FOMC meeting, and the upward revision to U.S. Q3 GDP growth.
Regarding specifics, U.S durable goods orders surged by 4.8% month-on-month in October, which is way better than the expected 1.2% increase. Moreover, this is fastest rate of increase in a year. The reading for Q3 U.S. GDP growth, meanwhile, was revised higher from to 2.9% to 3.2%, beating expectations that it was gonna be revised higher to 3.0%.
As for the FOMC meeting minutes, it was revealed that “Most participants expressed a view that it could well become appropriate to raise the target range for the federal funds rate relatively soon.” Moreover, “Some participants noted that recent Committee communications were consistent with an increase in the target range for the federal funds rate in the near term or argued that to preserve credibility, such an increase should occur at the next meeting.”
Moving on to the other currencies:
EUR – Net change in positioning on the euro was very minimal, but a closer look at positioning activity shows that both euro bulls and bears were reinforcing their positions, with bulls adding 8,986 contracts while bears added 8,878 bets. Both bulls and bears were adding to their bets, likely as preemptive positioning ahead of the December 4 Italian referendum.
GBP – After two straight weeks of easing bearish bias on the pound, net bearish bets increased again, thanks to 414 fresh short bets and the unwinding of 3,403 long bets on the pound. The unwinding long bets was likely a response to reports that a think tank called “British Influence” is arguing that triggering Article 50 of the TEU would not be enough to get the U.K. out of the single market, adding that Article 127 of the EEA must be invoked as well. Although it’s also possible that longs were paring their bets ahead of the BOE’s bank stress test results and Financial Stability Report, which were released on November 30.
JPY – Non-commercial forex traders have been net long on the yen since December 2015. However, positioning on the yen finally switched to net short during the week ending on November 29, 2016, thanks to the substantial addition of 12,110 fresh shorts, which were slightly offset by 941 fresh longs. The large increase in bearish bets on the yen was very likely due a bout of risk-taking, which resulted in another round of bond-selling, which sent yields ever higher, fueling speculation that the BOJ would implement its so-called “QQE With Yield Curve Control” framework in order to push the yield of Japanese government bonds back down to the BOJ’s target of around 0%. Also, widening spreads between Japanese bonds and bonds from other countries mean that demand for Japanese bonds and the yen both fall as investors look for higher-yield elsewhere.
CHF – The Swiss was pushed deeper into the red, although positioning activity shows that bulls and bears were adding to their bets. It just so happens that the additional 4,946 short contracts were able to overwhelm the 3,512 increase in Swissy shorts. Positioning activity on the Swissy was similar to the euro, and the likely explanation for this is that Switzerland’s primary export market is the E.U.’s single market. The repercussions of the Italian referendum would therefore be also felt by Switzerland.
AUD – Net bullish bets on the Aussie got slashed for the second week in a row. This time around, the reduction in net bullish bets was due mainly to the loss of 8,697 long bets on the Aussie, although the addition of 1,051 fresh Aussie shorts helped as well. The reduction in Aussie longs and the addition of shorts was likely a reaction to dipping iron ore prices at the time, which culminated in a very hard 7% drop on November 30.
NZD – The Kiwi was pushed even deeper into bearish territory, thanks to the long bets on the Kiwi getting reduced by 1,548 contracts. This was partially offset by the loss of 209 short contracts. The culling of Kiwi longs and the slight reduction in Kiwi shorts were likely a reaction to the RBNZ’s Financial Stability Report, with bulls being induced to take some profits off the table while bears got spooked a bit. You see, the RBNZ expressed concern that “Vulnerabilities in the housing market have increased in the past six months.” Also, “House price pressures continue to spread to the rest of the country.” This means that the RBNZ is not likely to cut rates again anytime soon, since further easing would make it easier to borrow money to invest in the housing sector, which may then further exacerbate the threat of a housing bubble.
CAD – After trimming their net short bets on the Loonie for two straight weeks, large speculators once again drove the Loonie deeper into bearish territory. A closer look at positioning activity shows that both Loonie bulls and bears were actually paring their bets, however, with Loonie longs falling by 3,250 contracts and Loonie shorts by 2,136. Positioning activity, with both longs and shorts adding to their bets, very likely reflected speculation ahead of the November 30 OPEC meeting. Of course, we now know that the meeting was a success and that oil and the Loonie both shot higher.
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 calledTrading based on Market Sentiment in the forums awaiting your participation.