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Non-commercial forex traders pared their net long bets on the Greenback for the fourth consecutive week. As a result, the value of net long bets on the Greenback fell from +$20.04 billion to $18.47 billion, according to calculations done by Reuters.  This is the lowest since late October. And the latest Commitments of Traders forex positioning report from the CFTC shows that the push-back against the Greenback was broad-based, since only the Swissy lost ground to the Greenback. Also, it’s worth noting that the yen advanced against the Greenback for the fifth consecutive week. 

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.

COT Report: Net Positioning

And here is how positioning activity played out during the week ending on January 31, 2017.

COT Report: Positioning Activity

The value of net long bets on the Greenback fell for the fourth consecutive week, as of the week ending on January 31. And demand for the Greenback very likely took a hit from the poor Q4 2016 GDP report, which printed an annualized quarter-on-quarter increase of 1.9%, a miss from expectations that it would come in at 2.2%.

Other than that, Trump’s executive orders on suspending the U.S. refugee program and temporarily banning immigrants and travelers from seven Muslim countries was seen by market analysts as net negative for the Greenback.

Moreover, a January 31 article from The Financial Times cites Trump trade adviser Peter Navarro as saying that Germany is exploiting the weak euro, which market analysts took to mean as the Trump administration’s dislike for the strong dollar. Furthermore, Trump himself would later come out and criticize China and Japan, accusing them of intentionally devaluing their currencies to get an advantage in trade.

Anyhow, do note that the most recent COT report shows how the big players were positioned before both the FOMC statement and the NFP report.

Speaking of the FOMC statement, it’s also possible that large speculators were betting that the FOMC statement wouldn’t be all that hawkish, especially after Fed Head Yellen’s January 19 speech, which market analysts say is not all that hawkish. And as we all now know, the February FOMC statement wasn’t really all that hawkish. In fact, the Fed’s assessment and outlook for inflation had some rather dovish undertones.

Okay, aside from another week of perceived inherent unattractiveness on the part of the Greenback, here are the major events for the other currencies:

EUR – Shorts bets on the euro got drastically reduced,  so much so that the reduction in long bets was easily overwhelmed. The culling of short bets on the euro was very likely due to euro shorts getting spooked by the euro’s rapid and broad-based appreciation after The Financial Times quoted Peter Navarro, the head of Trump’s National Trade Council, as saying that “Germany is using a ‘grossly undervalued’ euro to ‘exploit’ the US and its EU partners.” Euro longs, meanwhile, likely used that as a pretext to take some profits off the table.

GBP – The pound continued to take ground from the Greenback. However, a closer look at positioning activity shows that both pound bulls and pound bears were abandoning ship. The reduction in pound longs probably shows profit-taking after the U.K.’s net positive Q4 GDP report was released, as well as disappointment that tabling amendments to the Brexit Bill was relatively hard, not to mention the tight timetable. MPs were widely expected to support the Brexit Bill, though. Also, The Guardian released a January 31 article claiming that Theresa May would be releasing a “white paper” detailing her Brexit plans, which likely eased Brexit-related jitters while scaring away pound shorts.

JPY – The yen took ground from the Greenback for the fifth consecutive week. Large speculators were so bullish on the yen that they ramped up their bullish bets while unwinding some of their shorts. And the increased bullishness on the yen was very likely due to BOJ’s lack of action during the BOJ statement, as well as the BOJ’s upgraded growth outlook. Also, bond yields were falling pretty hard at the time, due to intense bond-buying. Moreover, the BOJ released its outline for JGB purchases in February, and it showed that the planned purchase amounts and the number of planned auctions for 5-10 year JGBs was unchanged, which shows that the BOJ was not really ramping up its asset purchases.

CHF – The Swissy stands out because it’s the only major currency that lost ground to the Greenback, thanks to fresh shorts on the Swissy easily overpowering the fresh longs. As to why large speculators were enticed to add short bets on the Swissy, that was likely due to reports that Switzerland’s tax break, which has benefited around 24,000 multinational companies, is about to end. The Swiss cantons are going to have a referendum on reforming that tax break, but companies are already beginning to hold off on further investments until the outcome for the tax break issue becomes clear.

AUD – Aussie bulls and Aussie bears continue to add to their positions. However, more longs were added than shorts. As a result, the Aussie continued to take ground from the Greenback. Aside from expected Greenback weakness against the Aussie, the fresh longs on the Aussie was likely due to speculation that Australia’s will report another trade surplus. And as we now know, Australia’s trade surplus in December of $3.51 billion was a total blowout and a record high. As for the fresh shorts, that was very likely due to the miss in Australia’s Q4 CPI, as well as the prevalence of risk aversion at the time.

NZD – Large speculators were very bullish on the Kiwi, since they added to their longs bets while simultaneously trimming their short bets. And this bullish positioning activity was very likely a reaction to New Zealand’s positive Q4 CPI report, which showed that CPI was within the RBNZ’s own projections, thereby easing the chance that it would be cutting rates again anytime soon.

CAD – Net positioning activity on the Loonie was very minimal. Although a closer looks show that both bulls and bears were reinforcing their positions. Fresh Loonie longs were likely from additional bets after Trump revived the Keystone XL pipeline project back on January 24. Fresh shorts, meanwhile, was likely due to sliding oil prices at the time, thanks to another round of increase in U.S. oil rigs, which threatens to offset the effects of OPEC’s 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 called Trading based on Market Sentiment in the forums awaiting your participation.