The value of net long bets on the Greenback climbed from $24.82 billion to $28,14 billion, according to calculations done by Reuters. This is the highest in almost a year. However, the latest Commitments of Traders forex positioning report from the CFTC reveals that the Greenback advanced mainly at the yen’s expense.
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:
The Greenback took ground from most of its peers, but surrendered ground to the euro, the pound, and the Canadian dollar. However, a closer look at positioning activity shows that the Greenback advanced mostly at the expense of the Japanese yen. Moreover, and as you’ll see later, positioning activity on most currencies during the week ending on December 6, 2016 involved the unwinding of both long and short bets.
The unwinding of short and long bets on almost all currencies was likely a reaction to the November NFP report. As Forex Gump pointed out in his Review of the November NFP Report, the report sent a mixed message, which caused December rate hike expectations to surge while eroding confidence in future rate hikes.
The Greenback did advance against most of its peers, though, since more shorts on the other currencies were bailing out than longs. This implies that large players are more focused on the upcoming December FOMC meeting, and the highly expected rate hike.
As for positioning activity and possible catalysts for the other currencies:
EUR – Net bearish bets on the euro got trimmed for the second consecutive week. The reduction is only moderate. However, a closer look at positioning activity shows that both euro shorts and euro longs were drastically slashing their bets, with euro longs down by 12,718 contracts and euro shorts down by 17,402 contracts.
The most recent COT report reflects positioning by the big players two days after the Italian referendum. And interestingly enough, large speculators actually reduced their net bearish bias on the euro, which resulted in the euro being one of the three currencies that managed to take ground from the Greenback during the week ending on December 6, 2016. The likely reason for this positioning activity, as well as the euro’s rise after the knee-jerk reaction to the referendum, is that market players think that political and economic turmoil would only be minimal. In addition, the Eurosceptic Freedom Party’s defeat during the rerun of the Austrian elections is a major road bump to the running narrative of growing support for populist, anti-establishment movements in Europe, which likely eased fears of an E.U. breakdown.
GBP – Net bearish bets on the pound got pared ever so slightly. However, positioning activity on the pound is kinda similar to that of the euro’s in that pound bulls and pound bears were both drastically cutting on their bet. Pound longs fell by 7,637 contracts while pound shorts fell by 8,534 contracts during the week ending on December 6, 2016.
Like the euro, the pound managed to take back some ground from the Greenback, albeit much smaller. Since the pound’s advance was so small, it’s possible that it was just a fluke, which is to say that it just so happened that there were slightly more shorts who were bailing out than longs. Still, there were some good news for the pound at the time, with Brexit Secretary Davis’ statement before Parliament being the most significant. To be more specific, Davis was asked if Theresa May’s government was willing to pay up in order to stay in the E.U. single market. And Davis replied with the following:
“The major criterion here is that we get the best possible access for goods and services to the European market and if that is included in what he’s talking about then of course we would consider it.”
In short, yes, the government is willing to do so, which then very likely eased Brexit-related jitters.
JPY – Looks like yen bears are really coming out of the woods now, since short bets on the yen increased by a stunning 35,911 contracts. This was partially offset by the 2,243 increase in yen longs. The yen has been in net bearish territory for the second week this year after turning net bearish during the previous week.
Positioning activity on the yen was the odd one out, since yen shorts not only added to their bets, they added to it big league. The surge in bearish bias on the yen was very likely due yet another round of bond-selling, which sent yields higher still. In the meantime, the BOJ’s so-called “QQE With Yield Curve Control” framework means that the yield of Japanese government bonds are intended to stay at around 0%. And the 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 – Large speculators became even more bet bearish on the Swissy. Like the euro and the pound, however, both Swissy longs and Swissy shorts were culling their positions, with Swissy longs getting pared by 3,168 contracts while Swissy shorts got trimmed by 2,105 contracts.
More Swissy longs were culled than Swissy shorts, probably because of the returning risk-on vibes after the Italian referendum, which dampened demand for the safe-haven Swissy.
AUD – Non-commercial forex traders are still net long on the Aussie, but they’ve been scaling their net bullish bets for the third straight week as of the week ending on December 6, 2016. However, the reduction is net long bets during the most recent week was very minimal. Although positioning activity does show that Aussie longs and Aussie shorts were both abandoning ship, with Aussie longs unwinding 6,517 contracts and Aussie shorts down by 6,431 contracts.
Positioning activity on the Aussie was actually essentially unchanged, which is kinda strange, given that the RBA announced its monetary policy decision on December 6 while iron ore was rallying on the same day. It is possible, however, that positioning activity reflects profit-taking by the bulls and bears getting spooked at the same time.
NZD – Net bearish bets on the Kiwi increased for the third consecutive week, thanks mainly to the unwinding of 2,590 long bets on the Kiwi. This was partially offset by the loss of 510 Kiwi shorts. Positioning activity on the Kiwi is rather weird, given that the GDT price index printed another increase on December 6. It does imply that Kiwi bulls were taking profits off the table, though, especially since the Kiwi had been a net winner for three consecutive weeks at the time.
CAD – The Loonie took back some ground from the Greenback. However, as with most of the other currencies, positioning activity shows that both Loonie bulls and Loonie bears were unwinding their positions. Long bets on the Loonie got cut down by 3,472 contracts while short bets got reduced by 3,890 contracts. Like with the pound, it’s possible that the Loonie may have just lucked out, given the rather small net change in positioning. However, if there’s one event that likely allowed the Loonie to take some ground from the Greenback, then that event would be the sealing of OPEC’s production cut deal.
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.