Large speculators slightly boosted their net favorable bets on the Greenback from $15.04 billion to $15.34 billion, according to the latest calculations done by Reuters.
However, the latest Commitments of Traders forex positioning report from the CFTC shows that positioning activity was a mixed bag of nuts. Interestingly enough, pound bulls and pound bears were both adding to their bets during the week ending on April 18, which means that pound bears were not scared away by Theresa May’s call for early elections and the resulting monster moves by the pound.
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 18, 2017.
Speculative forex traders added to their net bullish bets on the Greenback. But compared to the previous week, positioning activity was more mixed and the increase in the value of net long bets on the Greenback was relatively more modest.
Having said that, the increase in demand for the Greenback was likely due to U.S. Treasury Secretary Steven Mnuchin’s April 17 interview with the Financial Times wherein Mnuchin said that “over long periods of time the strength of the dollar is a good thing,” adding that a strong dollar is “a function of the confidence and the strength of the US economy.”
However, the increase in demand for the Greenback was only modest, very likely because Greenback bulls were still reeling from Trump’s April 12 interview with The Wall Street Journal where The Donald said 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.
Also, there were negative economic reports for the U.S., with the disappointing CPI and retail sales reports being the most noteworthy.
As for specifics, CPI fell by 0.3% month-on-month between February and March. This is the first negative reading in 13 months and missed expectations that CPI would only stagnate. On an annual basis, CPI only increased by 2.4%, breaking a seven-month trend of ever improving annual readings.
Meanwhile, retail sales during the March period fell by 0.2% instead of ticking higher by 0.1%. This is the first negative reading in seven months and many store types took hits to boot.
Moving on, I noted earlier that positioning activity was a bit mixed, so positioning activity was also very likely influenced by catalysts for the other currencies.
Anyhow, here are the major events, reports, and other catalysts for the other currencies:
Both euro bulls and euro bears continue to reinforce their position. And like the previous week, more fresh shorts were added, so net bearish bias on the euro increased.
This should be pretty obvious for regular readers, but for the newbies out there, do take note that positioning activity does not yet reflect the results of the first round of the French Presidential elections wherein Macron and Le Pen get to advance to the second round, and with Macron coming out on top during the first round.
With that sad, the increase in short bets on the euro during the week ending on April 18 was likely due to worries (at the time) over the French Presidential elections, since Jean-Luc Mélenchon, a left-leaning anti-EU candidate, was surging in the polls and created the possibility that two anti-EU candidates get to proceed to the second round of the elections. Of course, we now know that did not happen.
As for the increase in euro longs, that was likely a reaction to Theresa May’s call for early elections, since less Brexit-uncertainty would also be good for the Euro Zone. After all, the E.U. is the other party in the Brexit negotiation process.
However, it’s also probable that the fresh euro longs reflect preemptive bets that the first round of the French Presidential elections would be within expectations, with Macron on top and Le Pen in second place, or even a win for the Macron and Fillon, the two status quo candidates.
The pound took ground from the Greenback. Although a closer look at positioning activity shows that both pound longs and pound shorts were adding to their bets.
The increase in pound shorts was not able to offset the increase in pound longs, though. And the larger increase in pound longs was very likely a reaction to Theresa May’s call for early elections, since polls are pointing to a potentially sweeping victory for Theresa May’s Conservative Party, which may translate to more seats in Parliament and weaker opposition during the Brexit negotiation process. And that would obviously reduce Brexit-related uncertainty.
Meanwhile, pound shorts added to their bets, probably because of disappointment over the U.K.’s jobs report, particularly wage growth, since real average weekly earnings fell by 0.4% year-on-year if bonuses are excluded, which is the first negative reading since August 2014 and likely signals a slowdown in consumer spending.
Other than that, it’s also possible that speculators who were more skeptical about the election polls were adding to their short bets. After all, the polls have been wrong before, namely during the 2016 Brexit referendum and 2015 general elections.
The yen advanced against the Greenback for the fifth consecutive week. And non-commercial forex traders were rather bullish on the yen, since they added to their yen longs while trimming their yen shorts.
Persistent demand for the yen was likely due to the persistent risk aversion and falling bond yields (at the time), thanks to a whole slew of geopolitical risks.
And while Theresa May’s call for early elections were viewed as having the potential of reducing uncertainty in the U.K. and Brexit, the market also apparently viewed it as an additional geopolitical risk, since risk sentiment soured at the time.
Positioning activity on the Swissy was rather bearish, since Swissy bulls trimmed their bets while Swissy shorts reduced theirs, which is rather strange since risk aversion prevailed at the time.
One possible explanation is that speculators were expecting the SNB to intervene (as it usually does), given the French Presidential elections. If that is indeed the case, then the reduction in Swissy longs may reflect profit-taking taking while the additional Swissy short may show preemptive positioning in case the SNB does intervene.
Positioning activity on the Aussie during the week ending in April 18 was similar to the previous week in that non-commercial forex traders were slashing both their Aussie longs and Aussie shorts, with more Aussie longs getting pared.
And as usual, this rather bearish positioning activity was likely a reaction to yet another round of slumping oil prices. Although positioning activity may also reflect the RBA meeting minutes, since the RBA’s worries over the labor market, consumer spending, and the housing market got highlighted. Also, the RBA’s overall tone sounded somewhat more worried or downbeat compared to the April 4 RBA monetary policy statement.
Net change in positioning on the Kiwi was so small that it was essentially unchanged. And a closer look at positioning activity also shows that changes to both Kiwi longs and Kiwi shorts were rather small.
There’s no clear reason why large speculators didn’t seem inclined to shuffle their bets on the Kiwi. But’s it’s possible that lower rate hike expectations from the Fed, which should increase demand for the higher-yielding Kiwi, was being balanced out by the prevalence of geopolitical risks, which usually weakens demand for the higher-yielding Kiwi.
Both Loonie longs and Loonie shorts added to their respective bets. The fresh longs on the Loonie was likely a reaction to the BOC statement, since the BOC sounded less worried and even upgraded its near-term projections and BOC head Stephen Poloz even said that: “given the data that we’ve seen in the last few months, I can quite clearly say no, a rate cut was not on the table at this time.”
Longer-term projections were still pointing to weakness, though. In addition, Poloz also highlighted a potential housing bubble in Canada. And that likely enticed Loonie bears to add to their bets.
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.