The value of net long bets on the Greenback jumped from a five-month low of $13.01 billion to $15.26 billion during the week ending on March 7, according to calculations done by Reuters. And the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback advanced across the board, losing ground only to the Swiss franc.
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 March 7, 2017.
Demand for the Greenback picked up during the week ending on March 7, very likely because of the onslaught of hawkish rhetoric from Fed officials, which caused expectations for a March rate hike to surge.
Worth highlighting are Fed Governor Brainard’s March 1 speech and Fed Chair Yellen’s March 3 speech. Brainard is a notorious dove, so her switch to a more hawkish tone is rather significant. As for specifics, Brainard said that “Assuming continued progress, it will likely be appropriate soon to remove additional accommodation, continuing on a gradual path.”
Yellen, meanwhile, is the Fed Chair, so she speaks on behalf of the Fed. And Yellen openly said that the March FOMC meeting is “live” for a rate hike when she said that: “at our meeting later this month, the Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate.”
Given that the Greenback took ground from everything, except the Swissy. It’s probably safe to say that positioning activity during the week ending on March 7 was influenced mainly by demand for the Greenback. However, there were also relevant catalysts for the other currencies that helped to influence positioning activity.
Anyhow, here are the major events, reports, and other catalysts for the other currencies:
EUR – The euro resumed its retreat against the Greenback, thanks to the reduction in euro longs, as well as fresh short bets on the euro. The reduction in euro longs was very likely due to profit-taking ahead of the ECB statement and presser, just in case Draghi says something dovish. Although we now know that Draghi was not very dovish. In fact, he even sounded a bit optimistic, or reluctant to ease further at least. Meanwhile, the additional bearish bets were probably due to Greenback demand, although it’s also possible that they reflect persistent worries over the upcoming elections in continental Europe.
GBP – The pound lost ground to the Greenback for the fifth straight week. Interestingly enough, positioning activity was very similar to the previous week in that pound bulls and pound bears were very heavily reinforcing their position, but fresh shorts overwhelmed fresh longs once again. Aside from Greenback demand, bearish bets on the pound likely increased because of Brexit-related worries. As for specifics, peers at the House of Lords added an amendment that protects the rights of E.U. citizens, defeating Theresa May’s government. The Lords then handed Theresa May another defeat when they added another amendment, this time giving Parliament veto power on the Brexit deal. These amendments likely increased uncertainty by a lot as well as raising expectations that Brexit may get delayed. However, Theresa May said that the Brexit timetable “remains unchanged” because many MPs at the House of Commons are saying that they will overturn the amendments. Also, Baroness Smith, Labour Party Leader at the House of Lords, came out and said that if the amendments are rejected then the Lords likely wouldn’t fight it. And these developments, which reduces the chance for Brexit to be delayed, is probably the reason why pound longs got a boost.
JPY – After nine consecutive weeks of advancing against the Greenback, the yen finally retreated. However, a closer look at positioning activity shows that both yen bulls and yen bears were upping their bets. But similar to positioning activity on the pound, there were far more fresh shorts than fresh longs. The increase in yen shorts was likely reflects stronger demand for the Greenback, as well as speculative bets against the yen because of climbing bond yields at the time, which was attributed to higher odds for a March Fed rate hike. The increase in yen longs, meanwhile, was likely due to safe-haven demand for the yen, thanks to a Trump-induced slide in global equities.
CHF – The Swissy was the only currency that somehow managed to take ground from the Greenback, as the increase in Swissy longs overwhelmed the increase in Swissy shorts. And the increase in long bets on the Swissy was very likely due to safe-haven demand for the Swissy, which SNB Head Thomas Jordan blamed on political uncertainty in continental Europe, Brexit, the potential banking crisis in Italy, and jitters over Trump’s trade policies.
AUD – After seven consecutive weeks of taking ground from the Greenback, the Aussie finally got pushed back. However, a closer look shows that large speculators actually slashed both their long and short bets on the Aussie. The fall in short bets likely shows Aussie shorts getting spooked after the RBA sounded a bit optimistic and refrained from jawboning the Aussie during the RBA statement. The decline in Aussie longs, meanwhile, likely shows profit-taking after the RBA statement, as well as some Aussie bulls getting scared away by slumping commodities at the time.
NZD – Large speculators finally became net bearish on the Kiwi after being net bullish during the previous four weeks. And the shift in bias was due to another week of losing ground to the Greenback, as more Kiwi longs abandoned ship while being partially offset by Kiwi shorts who were also abandoning ship. Positioning activity very likely shows Kiwi longs running away and Kiwi shorts taking some profits off the table after the Kiwi weakened because of higher expectations for narrower interest rate differentials soon, thanks to higher odds for a March Fed rate hike.
CAD – Net change in positioning on the Loonie was minimal. Although a closer looks shows that Loonie bulls and Loonie shorts added to their respective bets. The fresh shorts was very likely because of the slump in oil prices at the time, as well as the BOC’s not-so-upbeat tone during the BOC statement. As for the fresh longs, those were probably due to optimism that Canada avoided a technical recession, as well as preemptive positioning ahead of Canada’s jobs report. And of course, we now know that Canada’s jobs report was great.
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.