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Large speculators buttressed their bullish bias on the U.S. dollar, causing the value of net long bets on the Greenback to rise from $22.45 billion to $24.17 billion during the last week of December, according to calculations done by Reuters. And the latest Commitments of Traders forex positioning report from the CFTC reveals that the Greenback took ground mainly from the Swissy and the Japanese yen, while getting some push-back from the Loonie and the euro. Also, the Aussie finally succumbed to the Greenback after several months of resistance.

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.

CFTC COT Forex Positioning (Dec. 27, 2016)
CFTC COT Forex Positioning (Dec. 27, 2016)

Lemme break down the latest numbers for y’all:

With the Aussie’s defeat, the Greenback finally reigned supreme against ALL its peers once more. Bullish bias on the Greenback is still likely being fueled by the Fed’s decision to hike rates back in December while signalling 2-3 rate hikes in 2017, which is more than the 1-2 projected earlier.

In addition, speculation on Trump’s fiscal policies is also still likely spurring demand for the Greenback. And it probably helped that the final estimate for Q3 U.S. GDP growth came in at 3.5% quarter-on-quarter (annualized), which is faster than the second estimate (3.2%) and the expected revision (3.3%), as well as a significant improvement over Q2’s 1.4% rate of expansion.

Still, positioning activity wasn’t uniformly in the Greenback’s favor during the week ending on December 27, 2016. Although this was very likely due in part to year-end positioning by the large players.

Anyhow, here is how positioning activity on the other currencies went down:

EUR – Bearish bias on the euro eased for the fourth consecutive week, thanks to short euro bets getting trimmed by 2,816 contracts and euro long bets getting pumped up by 5,821 contracts.

The increase in long bets and the simultaneous paring of short bets on the euro was probably a reaction to the announcement that Italy approved a bailout plan for its troubled banks, particularly Montei dei Paschi. Although it’s also possible the reduction in euro shorts was due to profit-taking after the euro’s bad run in 2016.

GBP – Large speculators also reduced their net bearish bias on the pound for the fourth consecutive week. And this time, they did this by adding 5,910 fresh pound longs. This was offset a bit by the 3,659 increase in pound shorts.

Easing bearish bias on the pound during the week ending on December 27, 2016 was likely still due to the BOE’s decision to sit on its hands and maintain a neutral policy bias during the December BOE Statement. And it probably helped that the final estimate for the U.K.’s Q3 GDP growth was revised higher from 0.5% quarter-on-quarter to 0.6%.

JPY – The yen was pushed even deeper into bearish territory. However, a closer look at positioning activity shows that both yen bears and yen bulls were both paring their bets. It just so happens that more bulls were bailing out than bears, with yen longs getting slashed by 23,635 contracts versus the 12,075 fall in yen shorts.

The stronger bearish bias on the yen was likely due to the risk-on vibes at the time, which sent equities higher. Another sign of the risk-on mood was the rise in U.S. bond yields, which market analysts attributed to stronger U.S. consumer confidence.

CHF – After becoming net bullish during the previous week, large speculators became net bearish on the Swissy again, thanks to long bets on the Swissy getting cut down by 19,173 contracts. This was partially offset by the 1,972 reduction in Swissy shorts.

The risk-on vibes that likely hurt demand for the safe-haven yen likely caused Swissy bulls to flee from the safe-haven Swissy as well.

AUD – Large speculators have been net bullish on the Aussie since the week ending on July 5, 2016. That finally came to an end during the week ending on Dec. 27, 2016, thanks to short bets on the Aussie getting ramped up by 11,2016 contracts, which was partially offset by the 5,755 fresh Aussie longs.

The relatively large increase in Aussie shorts was likely due to the slide in iron ore price at the time. Although longer-term fundamentals, namely the narrower interest rate differentials after the U.S. Fed hiked rates, were likely a factor as well. The increase in Aussie longs, meanwhile, was probably because of the risk-on vibes that I mentioned earlier, which stoked demand for the higher-yielding Aussie.

NZD – Non-commercial forex traders became even more bearish on the Kiwi. Long bets on the Kiwi got trimmed by 2,865 contracts while short bets increased by 1,183 contracts.

The increasing bearish bias on the Kiwi was likely due to expectations that narrower interest rate differentials between the U.S. and New Zealand would continue to pull away investors from New Zealand. Well, that’s what the RBNZ expects anyway, when RBNZ’s Wheeler said during the November RBNZ Statement that the Kiwi will fall, “reflecting an improvement in global economic conditions and a narrowing of interest rate differentials between New Zealand and other advanced economies.”

CAD – Net bearish bets on the Loonie got drastically reduced, thanks to 14,351 fresh Loonie longs. Although this was partially offset by the 4,195 increase in Loonie short contracts.

The large increase in Loonie longs was likely prompted by rising oil prices at the time, as well as speculation that oil will continue to rise in 2017, amid the OPEC and non-OPEC oil cut deals. As for the increase in Loonie shorts, that was probably because Canada released some rather disappointing top-tier economic reports during the week ending on December 27, 2016, such as Canada’s CPI falling  by 0.4% month-on-month in November.

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.