According to the calculations done by Reuters, large speculators pared the value of their net long positions on the Greenback from $8.25 billion to a 9-month low of $7.53 during the week ending on May 30, 2017.
And the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback got pushed backed broadly, with the euro still doing most of the the pushing. Also worth noting is that large players had a change of heart on the pound since they finally added to their net bearish bets after trimming them for six consecutive weeks.
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 30, 2017.
As for details, the minutes of the May FOMC meeting revealed that Fed officials were a bit worried about the slowdown in GDP growth while also revealing that “Nearly all policymakers expressed a favorable view” on the “operational approach” for trimming the Fed’s massive balance sheet that was proposed by the FOMC staff.
The above details caused odds for two more rate hikes by the end of the year to waver, which is likely why demand for the Greenback suffered.
As for the latest PCE readings, the headline year-on-year reading dipped from +1.9% to +1.7% in April. The core reading, meanwhile, dipped from +1.6% to +1.5%. And since the PCE is the Fed’s preferred measure for inflation, then that also weakened expectations for further hikes.
Anyhow, here are the major events, reports, and other catalysts for the other currencies:
The euro took ground from the Greenback for the sixth consecutive week. And that was likely due to a widely-circulated Reuters report that cited four unnamed ECB “sources” as making the claim that the ECB is allegedly “set to take a more benign view of the economy when they meet on June 8 and will even discuss dropping some of their pledges to ramp up stimulus if needed.”
Other than that, the euro also probably benefited from easing worries over Greece after Greek Finance Minister Euclid Tsakalotos invalidated rumors that Greece was planning to opt out of receiving more bailout money.
After six consecutive weeks of pushing back against the Greenback, the pound finally took a step back, thanks to the decrease in pound longs, as well as fresh pound shorts.
This rather bearish positioning activity very likely reflects how the big players reacted to U.K.’s Q1 GDP growth being downgraded from +0.3% quarter-on-quarter to just +0.2%, the weakest in four quarters.
More importantly, the GDP report revealed that the biggest drag on growth was not consumer spending , but net trade. And net trade was a drag because of the decline in exports and the increase in imports.
This is particularly damaging to rate hike expectations because some BOE officials, including Krisitin Forbes, who’s the only one to vote for a rate hike so far, have based their forecasts on growing net trade offsetting the expected weakness in consumer spending.
Anyhow, another factor that likely soured sentiment on the pound was the fact that poll results were beginning to show that the Conservative Party’s lead was beginning to shrink.
A May 26 YouGov poll, in particular, was being cited as a major turning point, since it was the first to give Theresa May’s Conservative Party a worryingly small 5-point lead.
The yen resumed its retreat against the Greenback, although the net absolute change in positioning was only minimal because both yen bulls and yen bears were actually reinforcing their positions.
Yen bears were probably adding to their bets because of news related to North Korea, namely Trump’s statement that there are supposedly two U.S. nuclear submarines near the Korean peninsula and another successful missile test in North Korea (and the usual threats).
In addition, Japan got some negative economic reports, such as industrial activity contracting by 0.6% month-on-month in March, which is worse than the expected 0.4% fall.
As for the increase in yen longs that likely had more to do with Greenback weakness, since yen spot and yen futures appreciated in the aftermath of the FOMC meeting minutes.
However, it’s also probable that more optimistic players were looking at the positive Japanese economic reports, such as the BOJ’s own core CPI reading printing a 0.2% increase (-0.4% previous) or retail sales increasing by 3.2% year-on-year in April.
Positioning activity on the Swissy was similar to that of the yen’s in that both Swissy bulls and Swissy bears were reinforcing their positions.
Unlike the yen, however, there were more fresh longs probably because of of positive reports and events related to the euro, given that the Swissy’s positive correlation to the euro has apparently returned. And as a result, the Swissy ended up taking ground against the Greenback.
After eight weeks of deteriorating sentiment on the Aussie, large players finally pared their net bearish bias on the Aussie. However, net absolute change was actually on very minimal. And the same can be said of how positioning activity went down.
No clear reason why positioning activity on the Aussie was very limited during the week ending on May 30, but it’s possible that non-commercial forex traders were in wait-and-see mode after Moody’s downgraded China’s rating.
The Kiwi advanced against the Greenback for the second week in a row, as Kiwi bulls added to their positions while Kiwi shorts very slightly trimmed theirs.
Bullish positioning on the Kiwi was likely driven by the positive Fonterra report, and New Zealand’s trade report since the former revealed that Fonterra upgraded its milk payout by 15 cents to $6.15 per kilo while forecasting an even bigger payout rate of $6.50 in the next season while the former printed a bigger surplus of $578 million in April, which is the biggest trade surplus since March of 2015.
Other than that, large players were likely optimistic that New Zealand’s annual budget would have a positive effect on the New Zealand economy since itn included measures meant to stoke consumer spending, plus the Treasury optimistically forecasted “annual economic growth to average over 3 per cent for the next five years, peaking at around 3.8 per cent in 2019.”
Sentiment on the Loonie finally improved a little bit after 12 consecutive weeks, although a closer look at positioning activity actually shows that both Loonie bulls and Loonie bears were unwinding their positions.
Loonie bulls were slashing their bets while some Loonie bears were likely taking profits off the table because of the slide in oil prices at the time, despite an extension to OPEC’s oil cut deal. Meanwhile, other Loonie bears likely got spooked when the BOC didn’t sound too worried during the latest BOC statement.
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.