After trimming their net bullish bets on the Greenback for a couple of weeks, large speculators raised the value of their net long bets from a five-week low of $14.67 billion to $15.04 billion during the week ending on April 11, according to calculations done by Reuters.
The latest Commitments of Traders forex positioning report from the CFTC shows that Greenback took ground from most of its peers. However, both the yen and the Swissy continue continue to resist.
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 April 11, 2017.
After two consecutive weeks of trimming their net bullish bets on the Greenback, large non-commercial forex traders decided to increase their bets again.
Demand for the Greenback likely picked up because of New York Fed President William 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.
In short, a change in the Fed’s balance sheet policy would not really affect the Fed’s pace of hiking, which caused rate hike expectations to recover.
And while the March NFP report was a big miss, with non-farm payrolls only increasing by 98K (175K expected), wage growth met expectations and the jobless rate improved to boot.
Also, market analysts pointed out that the severe snowstorm that ravaged the northeastern U.S. may have contributed to the weakness in jobs growth, particularly in construction. Jobs growth will therefore probably recover in April. As such, the terrible NFP report wasn’t really that terrible.
However, do note that the most recent COT report does not yet reflect The Donald’s interview with The Wall Street Journal. You see, The Donald said in that interview that he thinks that the U.S. dollar “is getting too strong” and that he likes a low interest rate policy. And that crushed rate hike expectations and caused the Greenback to slump across the board.
Anyhow, here are the major events, reports, and other catalysts for the other currencies:
Both euro bulls and euro bears added significantly to their respective positions. There were more fresh euro shorts than longs, though, which is why the euro lost ground to the Greenback.
The large increase in euro shorts is likely linked to ECB President Draghi’s April 6 speech and the minutes of the March ECB meeting, since they confirmed the March 29 Reuters report which cited unnamed ECB officials who were “keen to reassure investors that their easy-money policy is far from ending.”
Also, it’s likely that speculators were betting that jitters related to the French Presidential elections would continue to weigh down on the euro.
As for the increase in euro longs, that’s a bit weirder, since economic reports for the Euro Zone that were released during the week ending on April 11 were mixed.
Although it’s likely that positive forward-looking soft data enticed longer-term players to position-in, since the ZEW economic sentiment indicator for the Euro Zone jumped from 25.6 to a 16-month high of 26.3, with Germany, the Euro Zone’s top economy, printing a 19.5, which is the best reading since August 2015.
Moreover, the Sentix investor confidence indicator for the whole Euro Zone rose from 20.7 to 23.9 in April, which is the best reading since August 2007.
It’s also possible that large speculators were opening preemptive positions ahead of the French presidential elections, though, with bets that either Macron or Fillon will win.
The pound was forced to retreat against the Greenback, since increase in pound shorts was able to easily overwhelm the increase in pound longs.
Aside from demand for the Greenback, the increase in pound shorts was likely driven by a slew of negative economic reports that were released on April 7, which included a stagnant reading for the Halifax Bank of Scotland’s March HPI, the 0.7% contraction in U.K. industrial production during the February period, and the U.K.’s trade deficit widening from £2.98 billion to £3.66 billion in February.
Also, BOE MPC member Gertjan Vlieghe cautioned in his April 5 speech that “a rate hike that turns out to be premature is a more serious mistake than one that turns out to be somewhat late.”
As for the increase in pound longs, that was likely a reaction to the U.K.’s inflation report, since CPI increased by 0.4% month-on-month in March (+0.3% expected). CPI also increased by 2.3% year-on-year, which marks the second straight month that CPI has been above both the BOE’s 2.0% target and the BOE staff forecast of 2.1%.
The yen took even more ground from the Greenback, as yen bears continue to bail while yen bulls added to their bets.
Yen bears were very likely convinced to abandon ship (and yen bulls were enticed to reinforce their bets) by the prevalence of geopolitical risks, which includes the French Presidential elections, the threat of war with Russia and the U.S. after Trump launched a missile strike against Syria after Assad allegedly gassed “beautiful babies” and a potential nuclear confrontation with North Korea after Trump ordered that a “very powerful” armada be sent to the Korean peninsula.
Also, bond yields were falling at the time because of the above mentioned geopolitical risks.
The Swissy was the only other currency that was able to push back against the Greenback. And the Swissy was able to do so, thank to the increase in long bets on the Swissy.
Demand for the Swissy was likely due to safe-haven flows, given the prevalence of geopolitical risks.
Non-commercial forex traders slashed both their Aussie longs and Aussie shorts. More Aussie longs got culled, though, and that was very likely due to the heavy slump in iron ore prices at the time as well as the overall risk-off vibes, which dampened demand for higher-yielding currencies like the Aussie.
The reduction in Aussie shorts, meanwhile, possibly reflects profit-taking after the Aussie tanked in the wake of the miss in Australia’s retail sales report and the April 4 RBA monetary policy statement wherein the RBA expressed some worries about the labor market and inflation.
Positioning activity on the Kiwi was the opposite to that of the Aussie’s, since large speculators were adding to their bets. The net effect is still the same, though, since there were more Kiwi longs, which resulted in the Kiwi slightly losing ground to the Greenback.
The rise in Kiwi shorts was likely linked to the risk-off vibes. The fresh Kiwi longs, meanwhile, was probably due to continued optimism after the GDT index rose by 1.6% in the latest dairy auction.
Both Loonie longs and Loonie shorts trimmed their bets. More Loonie longs got pared, though.
Positioning activity likely reflects preemptive unwinding ahead of the BOC statement. Although it’s also possible that more long were lost because of profit-taking by Loonie bulls who rode the oil rally at the time.
Anyhow, we now know that the BOC sounded less worried and even upgraded its near-term projections. Longer-term projections were still pointing to weakness, though. In addition, the BOC’s Poloz said that a rate cut was not on the table, at least during the recent BOC meeting. Although Poloz also highlighted a potential housing bubble in Canada.
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.