According to calculations done by Reuters, large non-commercial forex traders trimmed the value of their net long positions on the Greenback from $8.00 billion to a $6.48 billion, which is the lowest since August.
And the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback lost ground against most of its peers, with the exception of the Aussie and the pound. Also, large players became net bullish on the Kiwi again for the first time since the week ending on February 28, 2017.
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 June 13, 2017.
The Greenback got pushed back broadly, and the lack of demand for the Greenback may have been due to unwinding by Greenback bulls ahead of the FOMC statement, given that a rate hike was considered fully priced-in already.
Do note that positioning activity does not yet reflect the disappointing top-tier U.S. economic reports ahead of and after the FOMC statement, as well as the FOMC statement itself.
Anyhow, here are the major events, reports, and other catalysts for the other currencies:
The euro took even ground from the Greenback for the eighth consecutive week, thanks to another round of reduction in euro shorts, which was partially offset by the a small reduction in euro longs.
The reduction in euro longs was likely a reaction to ECB-related rumors about a possible downgrade to the ECB’s inflation outlook.
As for the reduction in euro shorts, that was likely due to the ECB statement. Sure, the earlier rumors about a downgrade to the ECB’s inflation outlook got validate. However, the ECB also upgraded its growth outlook and removed its easing bias on interest rates. It must be pointed out that the ECB still has an easing bias on its QE program, though.
Aside from the ECB statement, the reduction in euro shorts may also reflect expectations that Macron’s party would win in France. And as it turns out, Macron’s party did win the parliamentary elections.
The pound lost more ground to the Greenback, thanks to even more pound bears coming out of the woods.
The fresh bears were very likely enticed to jump in when Theresa May’s Conservative Party was unable to capture the needed 326 seats in order to have a majority government since that would mean less stability in government and higher difficulty when it comes to Brexit negotiations.
Interestingly enough, the increase in fresh short contracts on the pound wasn’t really that big. There was even a small increase in long bets on the pound. And that was likely due to the U.K.’s strong CPI report since the year-on-year reading of +2.9% was above the BOE’s staff forecast of +2.7%, which likely made traders think that the BOE would be a bit more hawkish. Of course, we now know that three BOE MPC members voted for a hike during the latest BOE statement, which is surprising because only Kristin Forbes was expected to vote for a hike.
After retreating against the Greenback for two straight weeks, the yen finally managed to push back against the Greenback.
However, a closer look at positioning activity shows that both yen bulls and yen bears were slashing their positions. It just so happens that more bears were bailing out than bulls.
Positioning activity likely reflects preemptive unwinding ahead of the BOJ statement since there was uncertainty on whether or not the BOJ would trim its asset purchases or at least hint at an exit strategy from very accommodative monetary policy. We now know that the BOJ maintained its current monetary policy and Kuroda even made it clear that an exit strategy would not be discussed until after the BOJ’s 2% inflation target is hit.
Also, the geopolitical events at the time may have spooked yen shorts, which may be the reason why more yen bears were bailing out of their positions.
Sentiment on the Swissy improved further as Swissy bulls reinforced their positions while Swissy bears trimmed theirs. This rather bullish positioning activity was probably due to the prevalence of geopolitical events at the time, which may have stoked speculation that the Swiss franc would be in demand as a safe-haven. And all the more so, given that the Swiss franc’s positive correlation to the euro has returned, which implies that the SNB’s forex intervention operations are no longer as effective.
Aussie bulls and Aussie bears were both abandoning ship. More bulls were jumping overboard, though. As a result, the Aussie was pushed deeper into net bearish territory.
The reduction in Aussie shorts probably reflects how large players reacted to the RBA statement since the RBA kept rates steady while maintaining its overall neutral tone, which may have disappointed some Aussie bears.
As for Aussie bulls getting culled, that was likely due to the persistent slide in iron ore prices at the time. Positioning activity does not yet reflect the rebound in iron ore prices starting on June 14, though.
The Kiwi finally entered net bullish territory for the first time since the week ending on February 28, 2017, thanks to even more fresh Kiwi longs, although these were partially offset by fresh Kiwi shorts.
The fresh Kiwi longs was likely due to continuing demand for the Kiwi since ANZ’s commodity price index and the most recent rise in the GDT price index continue to support Fonterra’s forecast for higher milk prices.
As for the fresh shorts, that was probably due to speculation that an expected Fed rate hike would put interest rate differentials into play and apply bearish pressure on the Kiwi.
The Loonie took back even more ground from the Greenback as Loonie bears pared their bets.
Loonie bears very likely got spooked when BOC Senior Deputy Governor Carolyn Wilkins said in a speech that the BOC “will be assessing whether all of the considerable monetary policy stimulus presently in place is still required,” which is a hint at a potential hiking bias.
The increase in fresh long contracts on the Loonie was only limited, though, probably because oil prices were sliding 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.