According to calculations done by Reuters, the value of net long bets on the Greenback edged lower from $28.14 billion to $2801 billion during the week ending on December 13, 2016. And the latest Commitments of Traders forex positioning report from the CFTC reveals that the Greenback got the most pushback from the euro. This was almost offset by the yen’s vulnerability against the Greenback.
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 most recent Commitments of Traders forex positioning report shows how the big players were positioned a day before the Fed finally decided to hike rates during the December FOMC monetary policy decision.
And like in the previous week, sentiment on the Greenback appears to be mixed, since it took ground from the yen, the Aussie, and the Loonie but got pushed back by the euro, the pound, the Kiwi, and the Swissy.
EUR – Large speculators have already been trimming their net bearish bets on the euro during the past two weeks. And for the week ending on December 13, 2016, they decided to do so again. This time large speculators very drastically reduced their net bearish bets on the euro, and they did so by culling 26,836 short contracts while adding 207 longs.
The substantial reduction in euro shorts was very likely due to profit-taking after the euro tanked very hard as a result of the December ECB monetary policy decision. As to why the euro tanked at the time, the short of it is that the ECB kept rates unchanged but extended its QE program from March 2017 to December 2017. This is three months longer than expected, albeit at €60 billion per month, which is less than the current pace of €80 billion per month. Aside from that, the ECB also made it clear that it was not tapering its QE program and that it is, in fact, reading and willing to “increase the programme in terms of size and/or duration” if needed.
GBP – Large speculators also decided to trim their net bearish bias on the pound. Positioning activity was more mixed, however, since both pound bulls and pound bears were reducing their bets, with pound longs getting reduced by 2,654 contracts while pound shorts fell by 7,549 contracts.
The unwinding of both pound longs and pound shorts were likely a preemptive move ahead of the December 15 BOE decision. There were far more bears who were abandoning ship than bulls, however, probably because some large speculators were expecting the BOE to be a bit more hawkish after the U.K.’s CPI reading for November came in at +1.2% year-on-year, which is better-than-expected and the best reading since October 2014. Pound bulls, meanwhile, were likely taking some delicious profits off the table after the pound rose on December 12, apparently fueled by U.K. Finance Minister Philip Hammond’s statement that he backs a transition deal to ease the impact of an actual Brexit.
JPY – Non-commercial forex traders were very bearish on the yen. And they showed this by slashing their long bets by 11,935 contracts while pumping up their short bets by 17,557 contracts.
The increased bearish bias on the yen during the week ending on December 13 was very likely due surging bond yields, U.S. bond yields in particular. There were actually two major instances of surging bond yields during the week ending on December 13. The first major surge occurred on December 8, shortly after the ECB decision while the second came about on December 13, due to the positive U.S. CPI data.
CHF – Net bearish bias on the Swissy got reduced ever so slightly. However, a closer look at positioning activity shows that both Swissy longs and Swissy shorts got pared, with Swissy longs down by 4,259 contracts and Swissy shorts down by 4,368 contracts.
Positioning activity on the Swissy was probably influenced by preemptive unwinding just in case the SNB does or says something totally unexpected during the December 15 SNB monetary policy statement (hint: it was a dud, as usual).
AUD – The Aussie is still holding out against the Greenback, but net bullish bets on the Aussie have been falling for four consecutive weeks. This time around, the reduction in net bullish bets was due to 7,984 long contracts getting cut down. This was partially offset by the loss of 586 Aussie shorts.
The reduction in Aussie longs was probably due to Aussie bulls getting spooked after it was revealed that Australia’s Q3 GDP contracted by 0.5% quarter-on-quarter when the consensus was that Australia’s GDP would grow by 0.2%. This is the first contraction since Q1 2011. Not only that, Q3’s contraction is also the biggest contraction since Q4 2008.
NZD – Like the Swissy net change in positioning on the Kiwi was very minimal, although net bearish bias on the Kiwi got eased ever so slightly. However, positioning activity shows that both Kiwi bulls and Kiwi bears were reinforcing their positions, with Kiwi longs increasing by 1,761 contracts while Kiwi shorts increased by 1,511 contracts.
The increase in long bets on the Kiwi was likely fueled by RBNZ Governor Graeme Wheeler’s speech where he reiterated his concern over New Zealand’s housing market, which then likely caused some speculation that the RBNZ likely won’t be cutting again soon, with some market analysts even going so far as to read a future rate hike from the speech. Moving on, there was also an increase in Kiwi shorts. And this was likely due to speculation that the Kiwi would weaken should the Fed push through with a rate hike. After all, the RBNZ did forecast during the November RBNZ statement that the Kiwi would soon weaken, “reflecting an improvement in global economic conditions and a narrowing of interest rate differentials between New Zealand and other advanced economies.”
CAD – The Loonie was pushed deeper into bearish territory, thanks to 6,208 fresh Loonie shorts. This was partially offset by 2,497 fresh long contracts on the Loonie, though.
The additional Loonie longs was likely a reaction to the successful non-OPEC deal to also cut oil output. The additional Loonie shorts, meanwhile, was likely prompted by a report from the International Energy Agency, which asserted that OPEC probably pumped out 34.2 million barrels per day in November. This is 500,000 more than OPEC’s own estimates, and likely dampened the expected effectiveness of the oil 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.