Large speculators slashed the value of their net long bets on the Greenback from to $15.29 to $12.70 billion during the week ending on May 2, 2017, according to the latest calculations done by Reuters.
And the latest Commitments of Traders forex positioning report from the CFTC, reveals that positioning activity was mixed yet again, but the Greenback lost a rather large chunk of ground to the euro.
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 May 2, 2017.
The Greenback lost substantial ground to the euro, and to a lesser extent, the pound and the Kiwi dollar. But at the same the Greenback also took some ground from everything else. Positioning activity was therefore mixed yet again, so catalysts for the other currencies likely drove positioning activity, rather than actual demand for the Greenback (or lack thereof).
Having noted that, there were a few interesting events for the Greenback during the week ending on May 2, 2017. These include Trump’s tax plan, which failed to impress because it was more of a guideline and list of goals rather than an actual and detailed plan. Another is U.S. Q1 GDP only growing by 0.7% quarter-on-quarter annualized, which is the slowest rate of expansion in three years.
Anyhow, here are the major events, reports, and other catalysts for the other currencies:
The euro saw the largest net change in positioning, thanks to large players drastically culling their short bets on the euro by 17,655 contracts while adding 1,587 fresh long bets on the euro.
This very bullish positioning activity very likely reflects unwinding of short bets on the expectation that Macron will win the second round of the French presidential elections after Macron came out on top during the first round of the elections. Of course, we now know that Macron won the second round of the elections and by a rather large margin to boot.
It’s also likely that positioning activity reflects ECB Draghi’s overall upbeat assessment and outlook for the Euro Zone economy during the April 27 ECB Statement, as well as the Euro Zone’s annual HICP jumping by 1.9% in April, with the core reading rising from 0.7% to a multi-year high of 1.2%.
Positioning activity on the pound was similar to that of the euro’s in that pound shorts got slashed while long bets on the pound were bumped higher.
Positioning activity still likely shows easing uncertainty, thanks to a poll results (at the time) giving Theresa May’s Conservative Party a wide lead against the Labour Party.
There was even one poll commissioned by the London Evening Standard that showed the Conservative Party as having captured 49% of voting intentions. And according to the London Evening Standard, 49% is “the biggest Conservative lead recorded since September 2008, and matches the lead they enjoyed in May 1983 when Mrs Thatcher won a 144 majority.”
Other than that, positioning activity likely shows how the big players reacted to the better-than-expected reading for the U.K.’s April manufacturing PMI (57.3 vs. 54.0 expected, 54.2 previous).
After six consecutive weeks of retaking ground from the Greenback, the yen finally got pushed back. However, a closer look at positioning activity shows that both yen bulls and yen bears were actually unwinding their bets.
Positioning activity likely shows profit-taking by yen shorts and yen bulls getting spooked by Kuroda’s statement during the BOJ press conference that “Talking about a specific exit strategy now would cause undue confusion in markets” because of low inflation levels, as well as Kuroda’s heavy hints that the BOJ’s bond-buying program is here to stay. And all the more so, given that the BOJ’s own core CPI reading slid lower by 0.1%.
It’s also possible that positioning activity is a reaction to Japanese Finance Minister Taro Aso’s warning that growing tensions in North Korea have made the yen “extremely unstable” as a safe-haven currency.
Net change in positioning on the Swiss franc was only minimal, although positioning activity shows that both bulls and bears were actually paring their bets. It’s not clear what drove positioning activity, though.
Net change in positioning on the Aussie was essentially unchanged during the week ending on May 2. And while Aussie bulls and Aussie bears did trim their respective bets, positioning activity was very minimal.
The very minimal net change in positioning was likely due to the negative news about Trump imposing an import tax on Canadian lumber and the RBA’s continuing worries over the Australian housing market, being offset by the iron ore rally at the time, as well as the RBA’s more neutral tone during the RBA statement, although the RBA did still express concern over the housing market.
Do note that positioning activity does not yet reflect iron ore plunging very hard on May 4.
Like the euro and the pound, the Kiwi also managed to take ground from the Greenback, as Kiwi shorts got reduced while Kiwi longs got increased.
The decrease in Kiwi shorts likely reflects profit-taking after the Kiwi weakened in the wake of news that Trump slapped an import tax on Canadian lumber, which was viewed as confirmation of Trump’s protectionist U.S. trade policy, that would also be detrimental to New Zealand’s export-oriented economy, especially if Trump decides to do the same to New Zealand.
As for the increase in Kiwi longs, that was likely due to speculation that the Kiwi will rise again after Trump backed down from killing NAFTA, which likely eased worries over a protectionist U.S. trade policy.
Like in the previous week, both Loonie longs and Loonie shorts drastically reinforced their respective positions. There were more Loonie shorts again, though, which is why the Loonie lost even more ground to the Greenback. This marks the ninth consecutive week of the Loonie’s retreat.
The large increase in Loonie longs was likely due to the oil slide at the time, which was later attributed by market analysts to worries over higher U.S. oil output and inventories, the liquidity crunch and slower growth in China, and positioning by large players.
As for the rather large increase in Loonie longs, there’s really no clear reason for that, although Trump agreeing not to kill NAFTA and have talks with Canada and Mexico may have helped.
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.