Large speculators trimmed their net long bets on the Greenback for the third week running. This time, the value of net long bets on the Greenback got slashed from $24.44 billion to $20.04 billion, according to calculations done by Reuters. This is the lowest since late October. And like the previous week, the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback got broadly pushed back.
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 24, 2017.
Demand for the Greenback took another hit. This time, however, the Greenback got pushed back across the board.
Large players were likely disappointed with Fed Head Yellen’s January 19 speech, which market analysts say is not all that hawkish. However, THE catalyst that very likely torpedoed demand for the Greenback was Trump’s inauguration, specifically The Donald’s inaugural speech.
You see, expectations were high that The Donald would deliver a pro-growth message while fleshing out some of the details of his planned fiscal policy. Instead, The Donald gave a populist and protectionist message, which may be good for the common American, but was rather frustrating for market players.
Other than that, it’s also possible that some large speculators were positioning themselves for a disappointing Q4 2016 GDP reading. After all, leading economic indicators were pointing to a slowdown in GDP growth. And we now know that GDP growth did indeed slow down in Q4.
Okay, aside from the perceived inherent unattractiveness of the Greenback, here are the major events for the other currencies:
EUR – The euro had the largest net absolute change in positioning, thanks mainly to the drastic reduction in euro shorts. This was very likely due to unwinding after the January 19 ECB statement and presser, likely because speculators, who were betting on a really dovish ECB, realized that Draghi didn’t really say anything really new.
GBP – After three weeks of increasing their net bearish bets on the pound, non-commercial forex traders decided to ease up a bit. However, a closer look at positioning activity shows that both pound longs and pound shorts got culled. It just so happens that far more shorts were taken off the table. Anyhow, positioning activity was likely influenced by the U.K. Supreme Court’s ruling against the British government’s authority to start the Brexit process without approval from Parliament. The ruling is good for the pound since it allows anti-Brexit MPs a chance to reduce the chance of a “hard” Brexit, which scared off pound shorts. The reduction in pound longs, meanwhile, was likely due to profit-taking.
JPY – The yen took ground from the Greenback for the fourth consecutive week. Not only that, the yen also had the second largest net absolute change in positioning, thanks mainly to yen shorts getting cut down significantly. This was very likely due to profit-taking by yen shorts, given the yen’s persistent weakness because of the rise in bond yields.
CHF – Net change in positioning on the Swissy was only very minimal to the point that net positioning was essentially unchanged. Net bearish bias on the Swissy did get marginally pared, though, since a bit more Swissy shorts were reduced than Swissy longs. There wasn’t really a major catalyst for the Swissy, though, which is also probably why positioning was essentially unchanged.
AUD – The Aussie took even more ground from the Greenback. Positioning activity shows that both Aussie bulls and Aussie bears were reinforcing their positions, though. The increase in Aussie longs was very likely due to the risk-on vibes at the time, as well as Australia’s better-than-expected jobs report. The increase in Aussie shorts, meanwhile, was likely due to speculation that the slide in commodities (at the time) would also drag the Aussie lower.
NZD – The Kiwi also advanced against the Greenback for the second week running. The Kiwi’s advance was thanks mainly to Kiwi short getting trimmed, though. And this likely shows Kiwi shorts getting spooked by a strengthening Kiwi because of the prevalence of risk appetite at the time. Although it’s also possible that large speculators were betting that Kiwi would print upbeat CPI numbers, since the Kiwi actually weakened when the better-than-expected CPI reading was released, instead of appreciating further.
CAD – Like its fellow comdolls, the Loonie also pushed back against the Greenback for the second week running. Not only that, the most recent push was enough to push the Loonie back into net bullish territory again, as Loonie shorts fled while Loonie longs added to their bets. It’s almost certain that positioning activity was influenced by Trump signing an Executive Order to revive the Keystone XL pipeline project.
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.