Large speculators trimmed their net bullish bets on the Greenback during the week ending on January 10. And according to calculations done by Reuters, the value of net long bets on the Greenback slightly fell from $25.03 billion to $24.95 billion.
Meanwhile, the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback lost ground to the yen and the euro while taking ground from everything else.
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.
And here is how positioning activity played out during the week ending on January 10, 2017.
Anyhow, bullish bias on the Greenback eased slightly during the week ending on January 10. However, the COT report shows that the Greenback only lost ground to the euro and the yen while taking some ground from everything else. Moreover, long bets on many of the Greenback’s forex rivals cut slashed.
This implies that non-commercial forex traders had mixed sentiments, but were still somewhat bullish on the Greenback, despite the reduction in net bullish bets.
This also implies that drivers for the other currencies, particularly the euro and the yen, also influenced how price action went down.
And the likely reasons for the mixed sentiment on the Greenback was that the December FOMC meeting minutes were pretty disappointing while the December NFP report helped to improve rate hike odds.
COT positioning activity on the other currencies:
Non-commercial traders eased their net bearish bias on the euro mainly by opening fresh long bets. And euro bulls were likely enticed by inflation in the Euro Zone increasing by 1.1% year-on-year in December, which is the fastest increase since September 2013.
Other economic reports released during the period likely helped spur demand for the euro as well, such as the Sentix Euro Zone economic index, which rose to a 17-month high of 18.2 for the month of January. Other than that, the risk-off vibes at the time also possibly caused some speculation that the euro may gain strength.
Net bearish bias on the pound continued to rise. And the very likely reason for that is heightened fear of a “hard” Brexit after British PM Theresa May said during a December 8 interview that “We are leaving, we are coming out, we are not going to be a member of the E.U. any longer. We will have control of our borders, control of our laws.”
Interestingly enough, pound bulls also added to their bets, and that was very likely to the better-than-expected PMI numbers for manufacturing, construction, and services, as well as positive reports, such as the U.K. being “first in line to do a great free trade deal with the United States,” according to Foreign Secretary Boris Johnson.
The yen’s push-back against the Greenback continued for the second week running. However, positioning activity shows that yen bulls and yen bears were both actually unwinding their bets.
And this likely showed profit-taking by yen bulls and yen bears getting spooked by the prevalence of risk aversion at the time. U.S. bonds yields, in particular, were sliding at the time due to bond-buying induced by Brexit fears and concern over the Chinese yuan, which helped to proper the yen higher during the January 9-13 trading week.
Net change in positioning on the Swissy was minimal, but it did show that the Swissy lost even more ground to the Greenback. However, positioning activity was similar to the yen in that both Swissy bulls and Swissy bears trimmed their bets.
There was no particular catalyst for the Swissy, although it’s likely that positioning activity also reflected profit-taking by Swissy bulls and Swissy bears getting scared away.
Net change in positioning on the Aussie was also very small. However, a closer look at positioning activity shows that Aussie bulls and Aussie bears were bailing out.
The likely reason for reduction in long bets is profit-taking by the Aussie bulls after the Aussie’s strong performance during the January 2-6 trading week, as well as the Aussie’s strong performance on January 9, thanks to the rise in iron ore price at the time.
The reduction in Aussie shorts, meanwhile, likely shows Aussie bears who opened fresh shorts last week abandoning ship after realizing they were on the wrong side of the market.
Large speculators became even more net bearish on the Kiwi, and they did so by cutting down on their long bets on the Kiwi. Like the Aussie, the Kiwi actually did rather well during the January 2-6 trading week, so positioning activity also likely shows some profit-taking.
Both long and short bets on the Loonie got slashed. The unwinding of Loonie longs was likely due to profit-taking after being the best-performing of the January 2-6 trading week, and after oil prices began to tank, starting on January 9.
The reduction of Loonie shorts is kinda weird, although it’s possible that Loonie shorts were disappointed by the very positive economic reports that were released during the period, such as Canada’s first trade surplus since September 2014 and the largest increase in full-time jobs in 43 months.
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.