According to the latest calculations done by Reuters, non-commercial traders continue to trim their bets on the Greenback. As of the week ending on May 9, 2017, the value of net long on the Greenback fell from 12.70 billion to $11 billion.
And the latest Commitments of Traders forex positioning report from the CFTC, reveals that positioning activity was very mixed as usual, since the Greenback took large chunks of ground from the Aussie and the Loonie while losing significant ground against the pound and the euro. Also, large players became net long on the euro for the first time since early May 2014.
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 9, 2017.
Positioning activity was very mixed, with the Greenback losing substantial ground against the euro and the pound while taking significant ground at the expense of the Aussie and the Loonie. As such, positioning activity was almost certainly influenced by demand (or lack thereof) for the other currencies, rather than sentiment on the Greenback itself.
In the May FOMC statement, the Fed very likely retained its projections of two more hikes this year, given that the Fed just downplayed the rather weak reading for Q1 U.S. GDP growth and just shrugged off the very poor March NFP report. All the while saying that inflation “has been running close to the Committee’s 2 percent longer-run objective.”
As for the latest NFP report, it showed that the increase in non-farm payrolls during the month of April easily exceeded expectations. However, other details were a bit disappointing since the jobless rate improved party because of a lower participation rate. Wage growth, meanwhile, continued to weaken on an annual basis and the previous monthly reading got downgraded to boot.
Anyhow, here are the major events, reports, and other catalysts for the other currencies:
Large speculators drastically slashed their net bearish bets on the euro once again. As a result, Net positioning on the euro finally got pushed into bullish territory after being in net bearish territory since early May 2014.
Large players have been drastically slashing their short bets on the euro since Macron won in the first round of the French elections, very likely on the expectation that Macron would easily win against his anti-EU rival Le Pen in the second round.
And the latest round of culling likely showed the continuing reduction in short bets on the euro ahead of the second round of the elections, as well as after the elections when Macron clearly won.
There was a reduction in euro longs, though, which may be due to profit-taking by some euro bulls after Macron’s win in the first round of the elections caused euro spot and euro futures to surge and then steadily climb.
The pound was another currency that took a big chunk of ground from the Greenback. In fact, the pound saw the largest net absolute change in positioning during the week ending on May 9, thanks to the massive reduction in pound shorts, which was partially offset by a smaller reduction pound longs.
Positioning activity, particularly the reduction in pound shorts, very likely reflects continuing expectations that Theresa May will win a sweeping victory in the June elections, given the Conservative Party’s very substantial lead in the polls.
The reduction in pound shorts is also likely a reaction to the slew of positive PMI reports for the U.K., which may have convinced some speculators that the BOE may still be looking to hike.
Do note, however, that the COT report shows how positioning activity went down during the week ending on May 9, so it does not yet show how large players reacted to the May 11 BOE statement, as well as the disappointing trade and industrial production data released on May 11.
Going back to positioning activity, the reduction in pound longs may have been due to profit-taking. However, it’s also possible that some pound bulls got spooked by Macron’s victory. After all Macron did threaten back on February 14 that he “will be pretty tough” on Brexit.
Sentiment on the yen deteriorated for the second week running, thanks to the increase in yen shorts overpowering the increase in yen longs.
The increase in yen shorts was likely a reaction to the BOJ’s core CPI reading ticking lower by 0.1%, since that reinforces the idea that the BOJ ain’t gonna be changing its bond-buying program or raise its negative rates anytime soon.
However, it’s also probable that some speculators were, well, speculating that the yen has lost its safe-haven status because, as Japanese Finance Minister Taro Aso’s warned, growing tensions in North Korea have made the yen “extremely unstable” as a safe-haven currency.
As for the increase in yen longs, that may have been a reaction to the May 5 CNBC interview with BOJ Governor Kuroda since Kuroda subtly revealed that the BOJ was working on an exit strategy from the BOJ’s current accommodative monetary policy when he said the following:
“Inside the bank, of course we have various simulations of potential exit strategies and so on and so forth. But as I said, it’s premature to openly discuss exit strategy at this moment when inflation rate is still close to zero, although improving.”
The Swissy also took ground from the Greenback, albeit not as much as the pound or the euro. And sentiment on the Swissy improved because there were more fresh Swissy longs than Swissy shorts.
The fresh Swissy longs may have been in anticipation of a Macron win in the French presidential elections, since a Macron win is viewed as being a positive for the Euro Zone’s stability, which would also be good for Switzerland, given that Switzerland exports mainly to the Euro Zone.
As for the increase in Swissy shorts, there’s no clear catalyst for that, although it’s possible that some traders got enticed to jump in when both Swiss franc spot and Swiss franc futures weakened substantially in the wake of Macron’s victory.
Non-commercial forex traders were rather bearish on the Aussie since they decided to slash their long bets while adding to their shorts.
Other than that, positioning activity also likely reflects how large players reacted to Australia’s disappointing retail sales report, which showed that retail trade turnover fell by 0.1% month-on-month in March instead of rising by 0.3% as expected, with the end result being a 0.27% quarter-on-quarter increase in Q1, which is slower than Q4 2016’s 1.07% increase and will likely weigh down on Q1 GDP growth.
The Kiwi also managed to take ground from the Greenback. However, a closer look at positioning activity shows that both Kiwi bulls and Kiwi bears were actually unwinding their positions. It just so happens that more bears were abandoning ship.
The commodities rout I mentioned earlier likely scared off some Kiwi bulls. As for the decrease in Kiwi shorts, that was probably due to expectations that the RBNZ would be more hawkish or even upgrade its OCR projections, given the positive economic reports for New Zealand during the week ending on May 9 (and before that as well), which include New Zealand’s upbeat jobs report and the RBNZ’s quarterly survey of expectations that showed an increase in inflation expectations.
However, we now know that the RBNZ maintained its neutral policy bias while keeping the projected path for the OCR unchanged.
Like the Aussie, positioning activity on the Loonie was very bearish, with fresh Loonie shorts being added while Loonie longs got cut down.
The bearish positioning activity was likely due to falling oil prices at the time, as well as disappointing data such as Canada’s trade balance falling by $0.1 billion in March instead of printing a $0.3 billion surplus as expected.
Lingering jitters over Canada’s housing market likely soured sentiment on the Loonie as well, although positioning activity does not yet reflect Moody’s downgrade of six major Canadian banks because of Canada’s housing market problems.
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.