According to the latest calculations done by Reuters, the value of net long bets on the Greenback was nudged slightly lower from $15.34 billion to $15.29 billion during the week ending on April 25, 2017.
And based on the latest Commitments of Traders forex positioning report from the CFTC, positioning activity was mixed yet again since the Greenback lost ground to the pound, the yen, and the euro while taking ground from everything else, mainly 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.
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 25, 2017.
Large players very slightly trimmed their net long bets on the Greenback. And that, together with the rather mixed positioning activity, indicates that demand (or lack thereof) for the other currencies was very likely driving overall positioning activity.
With that said, the lack of uniform positioning activity also probably reflects a bit of confusion since Trump said back in an April 12 interview with The Wall Street Journal that the U.S. dollar “is getting too strong” but U.S. Treasury Secretary Steven Mnuchin’s said in an April 17 interview with the Financial Times 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.”
To make the administration’s position on the Greenback’s strength even more confusing, the transcript of Mnuchin’s interview was released on April 19 and it showed that Mnuchin agreed with Trump that a strong Greenback would hurt exports in the short-term, but that Trump was “absolutely not” intentionally trying to talk down the Greenback during Trump’s April 12 interview.
Other than that, the mixed positioning activity also probably shows uncertainty ahead of Trump tax plan, since Trump’s tax announcements have been hyped up before only to fail to deliver later. Of course, we now know that was indeed the case yet again since Trump only produced a one-page list of guidelines/goals rather than an actual tax plan.
Anyhow, here are the major events, reports, and other catalysts for the other currencies:
Net change in positioning on the euro was very small. However, a closer look at positioning activity shows that euro bulls and euro longs slashed their respective bets by a lot.
And the reduction of both euro longs and euro shorts very likely reflects profit-taking by euro bulls and euro shorts getting spooked after euro spot and euro futures appreciated significantly due to easing Brexit-related jitters after Theresa May’s call for early elections, as well as status quo candidate Macron coming out on top during the first round of the French presidential elections.
Positioning activity on the pound was quite bullish since non-commercial forex traders added to their long bets on the pound while trimming their short shorts.
Another week of demand for the pound was likely due to persistent optimism after Theresa May’s call for early election. And all the more so, given that poll results at the time continued to give Theresa May’s Conservative party a very large lead against the Labour Party, which likely made speculators think (and bet) that the Conservative Party would win even more seats and have a larger working majority than it currently has.
The yen took back even more ground from the Greenback, marking the sixth consecutive week of push back against the Greenback.
Interestingly enough, the yen actually got hurt bad by the prevalence of risk appetite after the first round of the French Presidential elections. And yet positioning activity on the yen was rather bullish, with yen bulls adding to their bets and yen bears slightly paring theirs.
This weird positioning activity probably shows speculation that the BOJ may be optimistic in the April 27 BOJ statement and that the BOJ may even hint at an exit strategy from its easy monetary policy.
Of course, we now know that the BOJ was indeed very optimistic, but we also now know that Kuroda shut down talk about an exit strategy by saying during the BOJ press conference that: “Talking about a specific exit strategy now would cause undue confusion in markets.”
Like in the previous week, positioning activity on the Swissy was rather bearish since Swissy bulls trimmed their bets while Swissy shorts added to theirs.
The Swiss franc did appreciate in the wake of the French Presidential elections and risk-taking persisted, so it’s possible that the reduction in Swissy longs was due to profit-taking by Swissy bulls or Swissy bulls just getting spooked. As for the slight increase in shorts, that was possibly due to speculation that the SNB would intervene (as it usually does) to weaken the Swiss franc.
Aussie bulls and Aussie bears continue to trim their respective bets, although the resulting net change in positioning on the Aussie dollar was only minimal during the week ending on April 25.
The fall in Aussie shorts was probably due to profit-taking after the minutes of the RBA’s April meeting apparently caused the Aussie dollar to tank, although it’s also possible that Aussie shorts got spooked by the surge in iron ore prices at the time.
The reduction in Aussie longs, meanwhile, may have been due to jitters due to the downbeat RBA meeting minutes as well as a reaction to news that Trump imposed an import tax on Canadian lumber, since that may have made Aussie bulls worry that Trump will do the same to Australia.
Like the Aussie, net change in positioning on the Kiwi was also very minimal. Unlike the Aussie, however, Kiwi bulls and Kiwi bears slightly bumped up their bets.
The very small increase in long bets was probably due to New Zealand’s better-than-expected Q1 2017 CPI reading of 1%. The slight increase in short Kiwi bets, meanwhile, was likely a reaction to Trump slapping an import tax on Canadian lumber. After all, a protectionist U.S. trade policy under Trump was identified by the RBNZ as one of the main risks to New Zealand’s economy. And the RBNZ made it clear that the U.S. doesn’t have to impose an import tax on New Zealand directly in order to hurt New Zealand’s economy.
Both Loonie longs and Loonie shorts drastically reinforced their respective positions. There were more Loonie shorts, though, which is why the Loonie lost ground to the Greenback for the eighth consecutive week.
The large increase in Loonie shorts was likely due to the news that Trump slapped an import tax on Canadian lumber, as well as sliding oil prices at the time.
As for the large increase in Loonie longs, that’s a bit weird since there wasn’t really any positive catalysts at the time.
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.