According to calculations done by Reuters, large speculators boosted the value of their net long positions on the Greenback from $6.48 billion to $7.82 billion during the week ending on June 20, 2017.
However, the latest Commitments of Traders forex positioning report from the CFTC shows that positioning activity was mixed, with the Greenback taking ground mainly from the euro while losing ground to everything else, particularly the Swiss franc, the Aussie dollar, and the Kiwi dollar.
Also worth pointing out is that large players became net bullish on the Aussie again after becoming net bearish during the week ending on June 6, 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 20, 2017.
The Greenback got another broad-base push back, although this was masked by the massive shift in positioning on the euro.
As to why sentiment on the Greenback continued to sour (except against the euro of course), that’s likely due to the disappointing top-tier economic reports ahead of the FOMC statement, namely the poor readings for U.S. CPI (0.1% vs. 0.2% expected) and retail sales (0.1% vs. 0.2% expected).
The drop in the University of Michigan’s consumer sentiment index (94.5 vs. 97.2 expected, 97.1 previous) after the FOMC statement also likely had a negative contribution to sentiment on the Greenback, since that caused odds for a December rate hike to ease a bit.
Speaking of the June FOMC statement, the fact that the Fed delivered on a highly anticipated hike apparently did not stoke more demand for the Greenback, even though the Fed projected that it still has room for one more hike this year and even said that it plans to start trimming its balance sheet “this year”.
However, it is highly likely that the FOMC statement was used by large speculators to take some profits off the table because shorts against the Swissy, the Aussie, the Kiwi, and the Loonie got pared.
Okay, here are the major events, reports, and other catalysts for the other currencies:
Net longs on the euro fell from its six year high, thanks to a massive influx of 37,219 short contracts on the euro, which was able to easily crush the 3,018 rise in long contracts. This puts an end to the euro’s eight-week advance against the Greenback.
There’s no clear catalyst for the massive increase in euro shorts during the week ending on June 20, 2017, but it’s likely that euro bears were encouraged to jump in because more speculators are thinking that the ECB statement during the prior week was negative overall since the ECB did say that it has not plans to taper and even explicitly said that it still has an easing bias on its QE program.
Moreover, the ECB also said that it’s ready to switch back to cutting bias on interest rates of conditions in the Euro Zone deteriorate.
Other than that, concerns over Italy’s banks may have been a factor, although that was “resolved” in somewhat more favorable terms when Italy decided to rescue two embattled banks over the weekend.
After retreating for three consecutive weeks, the pound finally took back some ground. However, a closer look at positioning activity shows that bulls and bears were both actually reinforcing their positions.
The increase in bullish bets likely reflects higher optimism for the pound after the minutes of the latest BOE statement revealed that there were now three MPC members in the hawkish camp.
As for the increase in pound shorts, that’s likely due to Brexit-related uncertainty, especially since Theresa May’s position got weakened in the aftermath of the general elections.
Also, the increase in shorts is likely a reaction to BOE Governor’s comments that he’s not yet ready to support a rate hike.
Do note, however, that the COT report does not yet reflect how large players reacted to BOE Chief Economist Haldane’s comments, which were surprisingly hawkish and a big contrast to Carney’s more cautious tone.
Net absolute change on the yen was only minimal, as yen bulls and yen bears added to their positions.
Speculation that risk aversion would drive up demand for the yen is the probable reason for the rise in yen longs.
The increase in yen shorts, meanwhile, is probably a reaction to the BOJ statement since the BOJ made it perfectly clear that it has no plans to remove negative rate and stop (or even taper) its QE program until and unless the BOJ’s 2% inflation target is hit.
Sentiment on the Swissy improved even further. This was thanks largely to the decrease in Swissy shorts, though, which was likely due to profit-taking by Greenback bulls in the wake of the FOMC statement.
As for the increase in Swissy shorts, that may have also been due to risk aversion at the time, which may have spurred speculation that the safe-haven Swissy would appreciate.
Net positioning on the Aussie finally became bullish again after becoming bearish during the week ending on June 6, 2017. Like the Swissy, there was a large reduction in Aussie shorts, which likely showed profit-taking by U.S. dollar bulls.
Unlike the Swissy, however, there was an increase in Aussie longs. In fact, Aussie longs accounted for the majority of the Aussie’s advance.
Interestingly enough, Moody’s also downgraded the long-term credit rating of Australian banks on June 19, but that apparently did not faze Aussie bulls, probably because the RBA’s meeting minutes maintained the RBA’s neutral tone and didn’t have any nasty surprise.
Also, Australia’s HPI only rose by 2.2% quarter-on-quarter in Q1 2017, which is slower than the 4.4% rise in Q4 2016 and likely helped to ease worries related to Moody’s downgrade.
Positioning activity on the Kiwi was similar to that of the Aussie’s in that Kiwi bears fled while fresh bulls charged in, with the fresh longs contributing to the majority of the net bullish increase in positioning.
The rise in Kiwi longs in harder to explain, however, although it’s very likely that the increase continues to reflect optimism over Fonterra’s report, which had a rather upbeat outlook on dairy prices.
It’s also possible that positioning activity, including the reduction in Kiwi shorts, reflects preemptive positioning ahead of the RBNZ statement. Of course, we now know that the RBNZ didn’t seem to worried about the strong Kiwi and just downplayed New Zealand’s slow Q1 GDP growth.
Positioning activity on the Loonie resembled that of the Swissy’s in that sentiment on the Loonie only improved because Loonie bears decided to trim some of their short bets. As such, positioning was likely driven by Greenback bulls unwinding some of their bets.
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.