According to calculations done by Reuters, the value of net long bets on the Greenback rose further from $17.59 billion to $18.44 billion during the week ending on March 21. This appears to show that demand for the Greenback was sustained.
However, the latest Commitments of Traders forex positioning report from the CFTC shows that positioning activity was mixed. Moreover, the Greenback gained mainly at the expense of the Loonie.
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 21, 2017.
Large speculators ramped up their net bullish bets on the Greenback. But as you can see above, positioning activity was actually very mixed, with the Greenback losing ground to the euro, the yen, and the Aussie while gaining very substantial ground against the Loonie, and to a much lesser extent, the pound, the Swissy, and the Kiwi.
Given the very mixed performance, it’s very likely that positioning activity was driven more by demand (or lack thereof) for each specific currency, rather than by inherent demand for the Greenback.
Having said that, positioning activity already reflects the Fed rate hike, as well as the new narrative about the U.S. healthcare vote being a test of Trump’s influence over his own party and Trump’s ability to push through with his agenda.
However, positioning activity does not yet reflect the Republican’s decision to pull the healthcare bill after Ryan told Trump that there were not enough Republican votes to counter the Democrats.
Anyhow, here are the major events, reports, and other catalysts for the other currencies:
Positioning activity on the euro during the week ending on March 21 was very similar to that of the previous week, since speculators continued to add to their euro longs while trimming their shorts.
This very bullish positioning activity was very likely due to continued optimism after the not-so-dovish ECB statement. Although it’s also very likely that demand for the euro got a boost because of easing political jitters after the anti-EU Geert Wilders lost in the Dutch elections and after Macron was declared to be the victor of the first French Presidential debate.
Net change in positioning on the pound was only very minimal. A closer look at positioning activity shows that both pound bulls and pound bears were culling their bets, though.
Pound bulls slashed their long bets likely because of profit-taking after the unexpectedly hawkish BOE statement and the surge in U.K. inflation. Although it’s also likely that some pound bulls got scared away when the U.K. government announced that it would trigger Article 50 of the TEU on March 29, thereby starting the formal process for an actual Brexit.
Meanwhile, pound bears slashed their bets probably because they got spooked by the BOE statement and inflation report, or long-term bears were unwinding their bets ahead of March 29.
The yen was able to push back against the Greenback, thanks to significantly more short bets getting trimmed compared to yen longs.
The reduction in yen shorts was likely due to yen bears getting spooked by plunging bond yields, which eased speculation that the BOJ would step in to push the yields of 10-year JGBs lower via bond purchases.
It’s also possible that some yen bears were unwinding their bets after the BOJ presented an optimistic outlook during the BOJ statement while maintaining its asset purchases “at more or less the current pace — an annual pace of increase in the amount outstanding of its JGB holdings of about 80 trillion.”
After two weeks of pushing back against the Greenback, the Swissy finally took a step back, thanks to the reduction in Swissy longs, which were partially offset by the fall in Swissy shorts.
Risk appetite was the dominant sentiment during the March 13 to 17 trading week, which dampened safe-haven demand for the Swissy and likely scared away some Swissy bulls.
Both Aussie bulls and Aussie bears entrenched their respective positions. There were slightly more bulls than bears, though, so the Aussie wa able to take some ground from the Greenback.
As to what influenced positioning activity Aussie longs were likely enticed to jump in by the broad-based commodities rally that lasted from March 15 to 17. Aussie bears, meanwhile, likely ramped up their bets when iron ore prices plunged by 4% on March 21.
Positioning activity on the Kiwi was very bearish, since bulls trimmed their bets while bears added to theirs.
This rather bearish positioning activity very likely reflects speculation that the RBNZ would be a bit dovish during the RBNZ statement, especially since New Zealand printed a rather disappointing Q4 2016 GDP report on March 16.
Of course, we now know that the RBNZ presented an optimistic face while maintaining its neutral policy bias.
Those finally came to an end, since Loonie bulls very drastically slashed their bets by a whopping 44,327 contracts. And this very significant reduction in long bets on the Loonie was enough to finally push the Loonie into net bearish territory.
The massive culling of Loonie longs appears linked to the large reduction in bullish bets on oil amid worries that OPEC’s oil cut deal would not be able to sustain oil prices, especially since there are signs that U.S. oil output continues to rise.
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.