Large speculators were net long on the Greenback by $62.5 million during the previous week. However, they finally became net short on the Greenback during the week ending on July 18, with the value of net short positions at $1.91 billion, according to the latest calculations done by Reuters.
And the latest Commitments of Traders forex positioning report from the CFTC shows that the pushback against the Greenback was still broad-based, although the Greenback continues to take ground from the yen. And this time, the Greenback managed to take ground from the Swissy as well.
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 July 18, 2017.
The Greenback broadly lost ground again, so much so that net positioning on the Greenback finally turned net bearish.
Sentiment on the Greenback continued to deteriorate during the week ending on July 18, very likely because of Yellen’s testimonies since they revealed that the Fed wasn’t really as confident on its inflation forecasts when Yellen said the following:
“We’re watching this [weak inflation] very closely and stand ready to adjust our policy if it appears the inflation undershoot appears consistent.”
The following statement from Yellen was also interpreted as a hint at a slower path to hiking:
“Because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance.”
Other than that, demand for the Greenback also likely took a hit because headline retail sales fell for the second consecutive month (-0.2% vs. +0.1% expected, -0.1% previous) in June while headline CPI for the June period was flat (0.0% vs. +0.1% expected, -0.1% previous), which reinforces Yellen’s more cautious tone towards inflation and therefore pared back rate hike expectations a bit.
Aside from lowered rate hike expectations due to Yellen’s more cautious tone and disappointing top-tier economic reports, U.S. politics also likely helped to sour sentiment on the Greenback since the GOP’s new healthcare Bill failed on July 18, which renewed worries that Trump’s growth-oriented plans would be delayed even further.
Okay, here are the major events, reports, and other catalysts for the other currencies:
The Euro continued to advance against the Greenback but positioning activity was more mixed this time since both euro bulls and euro bears added to their positions.
Positioning activity likely shows preemptive positioning ahead of the ECB statement and presser.
More fresh longs were added, though, very likely because large players were expecting the ECB to remove or hint at the removal of the ECB’s easing bias on its QE program.
And all the more so since the Wall Street Journal’s July 13 article cited unnamed sources as saying that Draghi will supposedly present a more hawkish message at the Fed’s Jackson Hole Symposium in August.
Of course, we now know that the ECB refrained from removing its easing bias on its QE program and ECB President Draghi even tried his best to sound dovish. Even so, Draghi only reinforced the idea that change will be coming sooner or later.
Non-commercial forex traders trimmed their net bearish bias on the pound by slashing their short positions while bumping up their longs.
This rather bullish positioning activity likely reflects higher BOE rate hike expectations due to McCafferty’s July 13 interview with The Times since the MPC member said that he will still likely vote for a rate hike and even added that the BOE should also start planning on how to unwind its balance sheet.
Moreover, the U.K.’s latest jobs report was positive overall, which also likely reinforced expectations for a BOE rate hike.
Positioning activity probably does not yet fully reflect how large players reacted to the U.K.’s June CPI report since the readings failed to meet expectations and were deemed negative overall, even though the the headline year-on-year reading of +2.6% is still within the BOE’s staff forecast. BOE Governor Carney even said in a Sky News interview after the CPI report was released that the “big picture” on inflation was unchanged.
Moreover, positioning activity probably does not yet reflect the recent revival of Brexit-related jitters.
Positioning activity on the yen was very bearish since shorts positions against the yen were reinforced while long bets were pared. And this was likely due to diverging monetary policy and speculation that the BOJ won’t change its super loose monetary policy.
After all, the BOJ did announce unlimited JGB purchases on July 7 in order to keep the yields of Japanese government bonds (JGB) at around 0% in accordance with its monetary policy framework of targeting bond yields.
And we now know that the BOJ refrained from changing its monetary policy during the latest BOJ statement. Moreover, the BOJ was forced to downgrade its inflation forecasts yet again, which drove home the idea that the BOJ will be maintaining its loose monetary policy for a long time, even as the other major central banks begin to tighten their monetary policy, which further highlights the divergence in monetary policy.
Net change in positioning on the Swiss franc flipped back to net short after becoming net long for the first time since the week ending on December 20, 2016.
The Swissy was pushed back into bearish territory because the fresh shorts on the Swissy were able to overpower the increase in longs.
The increase in long positions likely reflects positioning by speculators who have noticed that the positive correlation between the euro and the Swissy are in play, as well as safe-haven demand ahead of the ECB statement.
As for the increase in shorts positions, there’s no clear reason for that. Although it’s possible that some large speculators were expecting the SNB to step in and squash safe-haven demand for the Swissy ahead of the ECB statement, as well as curb the Swissy’s overall strength during the past few weeks.
Positioning activity on the Aussie was very bullish. But what’s really noticeable is the rather substantial influx of Aussie longs.
Aside from the surge in iron ore prices at the time, the very bullish positioning on the Aussie was very likely influenced by the RBA minutes since the minutes revealed that the RBA was actually rather upbeat on the Australian economy, even though the RBA presented a very neutral tone during the July 4 RBA statement.
Moreover, the minutes showed that the RBA spent a lot of time discussing the neutral rate, which the market interpreted as a sign that the RBA may also be joining the hawkish bandwagon sooner or later, according to market analysts. As such, the RBA minutes caused rate hike expectations to ramp up and this is reflected in how positioning activity on the Aussie played out.
However, it must be stressed that RBA rate hike expectations got killed when RBA Deputy Governor Guy Debelle said during a July 21 speech that “No significance should be read into the fact the neutral rate was discussed at this particular meeting.”
Large players trimmed both their long and short bets on the Kiwi. It just so happens that more short positions got pared, which is why the Kiwi net positioning on Kiwi became even more net bullish.
Positioning activity likely showed profit-taking by shorts and Kiwi bulls getting spooked by New Zealand’s disappointing Q2 CPI report since it revealed that CPI was flat instead of rising by 0.2% as expected (1.0% previous).
Positioning activity on the Loonie was similar to that of the Aussie’s in that bulls added to their positions while bears trimmed their. Also, the increase in Loonie longs was rather substantial.
This very bullish positioning activity is almost certainly a reaction to the BOC statement since the BOC not only delivered on a rate hike, but even implied that more hikes are to be expected if the Canadian economy continues to improve.
Also, oil was on the rise 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.