After trimming their net favorable bets on the Greenback for three consecutive weeks, large players finally boosted the value of their net longs bets from from $11 billion to $13.5 billion, according to the latest calculations by Reuters.
However, the latest Commitments of Traders forex positioning report from the CFTC shows that positioning activity is still a mixed bag of nuts, since the Greenback continued to cede ground to the euro and the pound, although the Greenback did take ground from everything else, especially the Aussie and the yen.
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 16, 2017.
Positioning activity was still mixed, but not as mixed compared to the previous week, since the Greenback only lost ground to the pound and the euro while taking ground from everything else.
Even so, positioning activity was still likely being driven by catalyst for the other currencies, given that most of the top-tier catalysts for the Greenback during the week ending on May 16, 2017 were actually disappointing.
The readings for U.S. CPI for April and April period retail sales, for example, both failed to meet expectations, with CPI only rising by 0.2% month-on-month (+0.3% expected) and retail sales increasing only by 0.4% month-on-month (+0.6% expected).
Also, do note that positioning activity already reflects the Washington Post article that accused Trump of revealing highly classified information, but it does not yet reflect the Comey memo wherein Trump supposedly asked Comey to stop the investigation on Flynn.
Positioning activity also likely does not fully reflect Trump’s tweets where he admitted that he did share certain information with the Russians while stressing that he has the right to do that as the U.S. President.
And as you probably already know by now, U.S. equities (and global equities for that matter), U.S. dollar spot and futures, and U.S. bond yields all tanked very hard because of the Comey memo and Trump’s tweets.
Anyhow, here are the major events, reports, and other catalysts for the other currencies:
Net bullish bets on the euro rose to its highest level in over three years, thanks to fresh longs on the euro and euro shorts getting another trim.
Positioning activity likely reflects further easing of political uncertainty in the Euro Zone after Merkel’s Party won in North Rhine-Westphalia, beating their main rivals, the Social Democrats, in their own turf.
Aside from that, positioning activity was very likely driven by optimism over the recent positive economic developments in the Euro Zone, as well as speculation that the ECB may be changing its tune sooner or later.
And we now know, thanks to the latest ECB meeting minutes, that ECB officials suggested that “if the euro area recovery kept up its momentum and progress was made in attaining a sustained adjustment in the path of inflation, due consideration would need to be given to adjusting the present formulation of the Governing Council’s forward guidance.”
The pound continued to take back ground from the Greenback. And positioning activity on the pound was similar to that of the euro’s, since pound bulls added to their bets while pound bears continued to unwind their bets.
Positioning activity on the pound is actually kinda strange, since it already reflects several disappoint economic reports, such as industrial production in the U.K. falling by 0.5% month-on-month in March and the U.K.’s trade gap widening by £2.3 billion to £4.9 billion in March.
And while the BOE retained its hiking bias during the May 11 BOE statement, it also admitted that its projections and bias assume a “smooth” Brexit and that no contingency plans have been prepared for a “disorderly negotiating process.” Also, the BOE downgraded its GDP projections for 2017, although it also did upgrade its growth projections for 2018 and 2019.
Still, it’s possible that positioning activity shows preemptive positioning ahead of top-tier U.K. economic reports, namely the jobs report and retail sales report.
Positioning activity may also reflect optimism that Theresa May’s Conservative Party will win a sweeping victory, since the Conservatives were able to maintain their large lead against Labour in the polls (at the time).
Large speculators were very bearish on the yen. And they showed this by adding very substantially to their yen shorts.
The very large increase in yen shorts was very likely still due 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.
And more yen bears may have been enticed to come out of the woods because of news at the time that North Korea successfully launched the Hwasong-12 “Juche Weapon“, which is a “Korean-style medium long-range strategic ballistic rocket,” according to North Korean State news.
Do note, though, that positioning activity does not yet reflect yen spot and yen futures gaining strength due to the intense risk aversion brought about by the Trump-related events mentioned earlier.
The Swissy lost ground to the Greenback after advancing during the previous week. The reduction in Swissy longs still likely reflects unwinding of preemptive bets on a Macron victory. The fresh short bets on the Swissy are a bit harder to explain, though.
Sentiment on the Aussie continued to sour, with Aussie bulls abandoning ship and Aussie bears adding a significant number of fresh bets.
The bearish positioning activity on the Aussie likely reflects the continuing slide in iron ore prices (at the time), as well as the RBA meeting minutes, which affirmed the RBA’s worries over the Australian housing market and weak consumer spending.
The minutes also warned that “much of the increase in the terms of trade since mid 2016 was expected to unwind over the next few years.” Moreover, the minutes reiterated that “an appreciation of the exchange rate would complicate” the Australian economy’s transition after the resource boom.
The Kiwi ceded ground to the Greenback as well. And that was very likely due to disappointment that the RBNZ maintained its neutral policy bias while keeping the projected path for the OCR unchanged and downgrading its GDP growth projection for 2017. You see, expectations were high that the RBNZ would be a bit more hawkish, or even upgrade its OCR projections, given the recent surge in New Zealand’s CPI.
Positioning activity on the Loonie was rather bearish, with long bets getting cut down and fresh shorts being added.
This rather bearish positioning activity was very likely a reaction to Moody’s downgrade of six major Canadian banks because of Canada’s housing market problems, which somehow overcame optimism over rising oil prices 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.