The value of net long bets on the Greenback fell from $18.47 billion to $17.07 billion, according to calculations done by Reuters. This marks the fifth consecutive week that large speculators have been trimming net long bets. And the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback continues to broadly lose ground. However, the Greenback was able to take ground from the pound.
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 February 7, 2017.
Demand for the Greenback took another hit during the week ending on February 7. And this was very likely due to disappointing top-tier events, namely the Fed’s not-so-hawkish tone during the February FOMC statement and disappointing wage growth from the January NFP report. Both of these events caused rate hike expectations to fall, dragging down the Greenback’s exchange rate and dampening demand for the Greenback.
Another factor was continuing disappointment over Trump’s actions and plans (at the time), since Trump was more focused on his immigration policies, rather than providing further details on his fiscal policies, which disappointed a lot of market players.
Do note that the most recent COT report shows how the big players were positioned BEFORE Trump said that he will be announcing “something phenomenal in terms of tax” during a February 10 speech. That particular statement apparently caused optimism for Trump’s fiscal plans to return. And this returning optimism, in turn, stoked demand for the Greenback. In fact, the Greenback was one of the best performing currencies during the February 6-10 trading week.
Okay, aside from yet another week of perceived inherent unattractiveness on the part of the Greenback, here are the major events for the other currencies:
EUR – Net change in positioning on the euro was only minimal, as both euro bulls and euro bears slightly increased their bets. Positioning activity on the euro is both interesting and strange at the same time because the Euro Zone and the euro were wracked with political uncertainty at the time, particularly with regard to German and French elections. However, positioning activity shows slight bullishness. There were a slew of mostly positive PMI and other economic reports for the Euro Zone, though, and it’s possible that large speculators were more focused on that.
GBP – The pound was the only major currency to lose ground against to Greenback, thanks to pound bulls abandoning ship. Positioning activity very likely reflects disappointment over the BOE’s decision to maintain its neutral monetary policy bias during the February BOE statement. You see, the BOE upgraded its economic projections, but its refusal to switch to a hiking bias was taken to mean that the BOE was in no hurry to hike rates, which disappointed market players. Aside from the BOE statement, the large reduction in pound longs may have also been due to profit-taking ahead of the Brexit Bill deliberations in the House of Commons. And as we now know, the Brexit Bill did pass through the House of Commons, albeit without any amendments.
JPY – The yen took ground from the Greenback for the sixth consecutive week. However, the yen only managed to advance against the Greenback because more yen shorts got culled compared to yen longs. The reduction in yen longs was very likely due to profit-taking, since risk appetite was beginning to return in the European and U.S. equities market. And before signs of risk appetite began to show, the yen already appreciated hard across the board, as it tracked the slump in bond yields due to safe-haven demand for bonds. The reduction in yen shorts, meanwhile, was likely due to yen bears getting spooked by the yen’s appreciation after bond yields slumped.
CHF – After getting pushed back by the Greenback last week, the Swissy regained its footing and was now the one doing the pushing. However, a closer look at positioning activity shows that the Swissy’s advance was due mainly to Swissy shorts paring their bets. This was likely due to the prevalence of risk appetite in the European and U.S. equities markets at the time, thanks to a string of positive earnings reports.
AUD – Aussie bulls and Aussie bears reinforced their positions once more. And like last time, far more longs were added than shorts, so the Aussie took even more ground from the Greenback. The increase in long bets on the Aussie was very likely due to Australia’s trade surplus in December, which came in at $3.51 billion. This is a record high and was due to exports surging by 5.4% to $32.63 billion, which is also a record high. Another factor for the increase in Aussie longs was the somewhat optimistic RBA statement.
NZD – In a very bullish move, large speculators reinforced their long bets on the Kiwi while simultaneously paring their short bets. In fact, non-commercial forex traders were now net bullish on the Kiwi again after almost three months of being net bearish. Positioning activity very likely showed preemptive positioning ahead of the RBNZ statement. At the time, the general consensus was that the RBNZ would switch from an easing bias to a hiking bias, with some market players expecting a rate hike as early as this year. Although most economists were expecting a rate hike by 2018. And we now know that the RBNZ chose to switch to a neutral policy bias instead, which caused the Kiwi to plunge. The fresh Kiwi bulls therefore probably got turned into roast beef.
CAD – Positioning activity on the Loonie was also very bullish, since large speculators added to their Loonie longs while trimming their Loonie shorts. However, there were noticeably more shorts bailing out than longs, probably because of short-covering after the Loonie dropped hard on disappointing news that the number of U.S. oil rigs rose to a high not seen since October 2015. Also, there were warning signs that U.S. oil inventories were gonna print a large build-up, whi
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.