Large speculators further eased their net bullish bets on the Greenback, with the value of their net long bets falling from $15.27 billion to $14.67 billion during the week ending on April 4, according to calculations done by Reuters.
The latest Commitments of Traders forex positioning report from the CFTC shows that positioning activity was mixed yet again, though, since the Greenback took ground against some currencies while losing ground to others. Although the Greenback did lose ground mainly to the yen.
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 went down during the week ending on April 4, 2017.
Demand for the Greenback eased for the second straight week. And that was very likely due to lingering disappointment after the Republicans decided to pull the healthcare bill, since that apparently eroded faith in Trump’s ability to push through with high plans, including his highly-anticipated fiscal stimulus plans.
Other than that, large speculators were also very likely pricing-in New York Fed President William Dudley’s March 31 comment that “It wouldn’t surprise [him] if sometime later this year or sometime in 2018, should the economy perform in line with [the Fed’s] expectations, that [the Fed] will gradually start to let securities mature rather than reinvest them.”
In other words, Dudley was talking about changing the Fed’s balance sheet policy. And since shrinking the Fed’s balance sheet has a similar effect to hiking rates, that probably made non-commercial forex traders think that we’ll be getting fewer hikes going forward.
Do note, however, the COT report does not yet reflect Dudley’s April 7 comment wherein he clarified that any changes to the Fed’s balance would only prompt “little pause” to the Fed’s pace of tightening.
Moreover, the most recent COT report does not yet reflect the reaction to the NFP report or the minutes of the March FOMC meeting.
Having said that, positioning activity was mixed yet again, so catalysts for the other currencies also very likely influenced positioning activity.
Anyhow, here are the major events, reports, and other catalysts for the other currencies:
Euro bulls and euro bears were unwinding their bets. However, there were far more bulls than bears. As a result, the euro lost ground to the Greenback after advancing for three straight weeks.
The large reduction in euro longs was likely a reaction to the March 29 Reuters report where unnamed ECB officials complained that the ECB’s message “was way overinterpreted,” since the market was already pricing-in a rate hike by next year when the ECB only “wanted to communicate reduced tail risk.”
As such, these unnamed ECB officials were “keen to reassure investors that their easy-money policy is far from ending.” And that very likely killed rate hike expectations.
And it probably didn’t help that the major Euro Zone economies began releasing disappointing inflation reports, with the Euro Zone as a whole printing a 1.5% year-on-year increase for its March HICP, which is weaker than the previous +2.0% reading, as well as missing the +1.8% consensus.
Going back to positioning activity, the reduction in euro shorts, meanwhile, likely shows profit-taking by speculators after the euro tanked in response to the Reuters report.
Non-commercial forex traders were also culling their bets on the pound. Unlike the euro, however, there were far more pound shorts abandoning ship than pound longs.
The trimming of short bets on the pound very likely shows profit-taking by pound bears after Article 50 got triggered on March 29, thereby formally starting the process for an actual Brexit.
And more pound shorts, especially short-term shorts, were likely convinced to bail out after the EU said in its formal reply that it “does not and will not pursue a punitive approach” against the U.K.
As for the reduction in pound longs, that was likely a reaction to the U.K.’s manufacturing PMI report, since it tumbled from 54.6 to 54.2, instead of climbing higher to 55.0 as expected.
The yen continued its advance against the Greenback, thanks to positioning activity similar to the pound.
Positioning activity likely shows yen bulls taking profits off the table and yen bears getting spooked after bond yields plunged on April 3, thanks to safe-haven flows after the subway explosion in Russia, wavering faith in The Donald’s fiscal stimulus plans, and skittishness ahead of Trump’s meeting with Chinese President Xi Jinping.
Positioning activity on the Swissy was similar to that of the pound and the yen, since Swissy bulls and Swissy bears trimmed their bets, with more Swissy shorts getting pared than longs.
Aside from weakening demand for the Greenback, the same factors favorable for the yen were also likely in play for the safe-haven Swissy, since the Swissy managed to take ground from the Greenback after retreating for two straight weeks.
Large players were rather bearish on the Aussie, since they slightly reduced their long bets on the Aussie while adding to their shorts.
This bearish positioning activity on the Aussie was likely due to sliding iron ore prices at the time, the disappointing 0.1% fall in Australia’s retail sales, and the April 4 RBA monetary policy statement wherein the RBA expressed some worries about the labor market and inflation.
The Kiwi got pushed back for the sixth consecutive week, thanks to the increase in Kiwi shorts, which was partially offset by the increase in Kiwi longs.
Kiwi bears were likely enticed to reinforce their positions by the New Zealand Institute of Economic Research (NZIER) business confidence index, since it dropped from 28 index points to just 17. And commentary from the report noted that “Confidence fell in all sectors surveyed.”
As for the fresh Kiwi longs, that was likely a reaction to the most recent dairy auction, since the GDT index rose 1.6% as an end result, which marks the second consecutive increase in dairy prices.
Net bearish bias on the Loonie increased, but a closer look at positioning activity shows that both Loonie longs and Loonie shorts were upping their bets.
The increase in long bets on the Loonie was likely prompted by the surge in oil prices at the time, thanks to the disruption in Libyan oil production and speculation that OPEC may extend its oil cut deal.
The larger increase in short bets on the Loonie, meanwhile, was likely due Canada’s disappointing trade report, which printed a $972 million deficit in February, and to the BOC’s business outlook survey, which showed that business inflation expectations remain low.
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.