After four weeks of adding to their bullish bets, large speculators slashed the value of their net long bets on the Greenback from $18.44 billion to $15.27 billion during the week ending on March 28, according to calculations done by Reuters.
The latest Commitments of Traders forex positioning report from the CFTC shows that positioning activity was another mixed bag of nuts, however. In addition, the Greenback lost ground primarily to the euro and the yen. And interestingly enough, the pound managed to take ground from the Greenback.
Oh, please keep in mind that the numbers below show the net positioning of non-commercial forex traders against the U.S. dollar.
And 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 28, 2017.
Demand for the Greenback very likely took a hit after the Republicans decided to pull the healthcare bill instead of putting it to a vote. This was after Ryan told Trump that there were just not enough Republican votes to ensure victory against the Democrats.
The healthcare bill was viewed as a sort of test for Trump’s influence over his own party, as well as Trump’s ability to push through with his agenda. And its failure eroded faith in the Trump effect, particularly Trump’s fiscal stimulus plans, which helped fuel demand for the Greenback in the past.
With that said, the COT report shows that positioning activity was another mixed bag of nuts. As such, catalysts for the other currencies were also very likely in play.
Anyhow, here are the major events, reports, and other catalysts for the other currencies:
Large speculators were still very bullish on the euro, since they reinforced their long positions yet again while simultaneously paring their shorts. And bullishness on the euro was very likely due to lingering optimism and another round of hawkish speculation after the not-so-dovish ECB statement.
It should be noted, however, that positioning activity does not yet reflect the widely-cited Reuters report that was released on March 29.
You see, that Reuters report effectively killed ECB rate hike expectations after unnamed ECB officials said to Reuters that the ECB’s message “was way overinterpreted,” given that the market was already pricing-in a rate hike by next year when the ECB only “wanted to communicate reduced tail risk.”
And that is why these unnamed ECB officials were “keen to reassure investors that their easy-money policy is far from ending.”
After retreating against the Greenback for seven consecutive weeks, the pound decided to make a stand and push back during the week ending on March 28, 2017.
The reduction in short bets on the pound was very likely due to profit-taking ahead of Article 50 getting triggered on March 29. The fresh pound longs are a bit weirder, but those probably showed speculative buying on the expectations that some long-term pound shorts would use the Brexit trigger to unwind their bets, lifting the pound.
However, it’s also possible that the bullish positioning activity shows speculative positioning on higher expectations for a BOE rate hike in the wake of the unexpectedly hawkish BOE statement, the jump in U.K. inflation, and the surge in U.K. retail sales volume.
The yen retook even more ground from the Greenback, as non-commercial forex traders added to their yen longs while slashing their shorts.
This rather bullish positioning activity was very likely due to falling bond yields at the time, as well as safe-haven demand for the yen, which some market analysts attributed to political uncertainty in Japan after Japanese PM Shinzo Abe got embroiled in a real estate scandal.
The Swissy got pushed back yet again. Demand for the Swissy very likely took a hit after SNB Governing Board Member Andrea Maechler said that the SNB would continue to intervene in the forex market while communicating that the SNB has no plans to budge from its current monetary policy anytime soon. Other than that, the Swissy also likely got hit by signs of returning risk appetite at the time.
Positioning activity on the Aussie was similar to that of the euro, the pound, and the yen in that Aussie longs increased their bets while Aussie shorts trimmed theirs.
Aside from fading Greenback demand, positioning activity on the Aussie was very likely influenced by surging commodity prices on March 28, as well as signs that risk appetite was returning, also on March 28.
Net positioning on the Kiwi was essentially unchanged, since the small reduction in Kiwi longs and Kiwi shorts almost cancelled each other out.
The very minimal positioning activity on the Kiwi was probably because of confusion in the wake of the RBNZ statement, given that the RBNZ maintained its neutral policy bias without directly addressing the slowdown in growth and the pickup in inflation.
Another possible reason for the subdued positioning activity is that New Zealand printed a trade deficit on March 23, but Moody’s would announce a day later that it affirmed New Zealand’s “AAA” rating, as well as New Zealand’s “stable” outlook, given New Zealand’s “very high economic resilience.”
Large speculators pushed the Loonie deeper into bearish territory by adding to their shorts. And Loonie shorts were likely enticed to jump in by Canada’s CPI report, which printed a 0.2% rise in February, which is a sudden slowdown from January’s 23-month high of +0.9%.
There was a small increase in Loonie longs, though, and that was likely due to recovering oil prices at the time, thanks to armed protests which disrupted oil production in Libya.
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.