Large speculators raised the value of their net short positions on the Greenback from $3.15 billion to $3.93 billion during the week ending on November 28, according to calculations done by Reuters.
And the latest Commitments of Traders (COT) forex positioning report from the CFTC reveals that net bearish bias on the Greenback increased mainly because of another wave of fresh pound longs and and another week of yen shorts getting squeezed out.
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 November 28, 2017.
Positioning activity was mixed and Greenback lost ground to the yen and the pound (and the Loonie to a lesser extent) while taking ground from everything else. Demand (or lack thereof) for the other currencies therefore played a role in positioning activity.
Even so, that doesn’t take away from the fact that the Greenback was vulnerable. And the Greenback was likely vulnerable because of Fed Chair Yellen’s comment that she is “very uncertain” about the expected rebound in inflation, the 1.2% contraction in U.S. durable goods orders, and the cautious tone of the FOMC minutes.
Okay, here are the major events, reports, and other catalysts for the other currencies:
Euro bulls and euro bears reinforced their respective positions. However, euro bears received more reinforcements, so net change in positioning was against the euro.
The influx of euro longs likely reflects latest batch of PMI reports, which were net positive, as well as speculation that a coalition government in Germany will be formed after Social Democratic Party of Germany (SPD) leader Martin Schulz said that “We [the SPD] won’t be obstructionist for the sake of being obstructionist.”
As for the influx of euro shorts, that was probably because other large players were speculating that government formation in Germany will get delayed or even fail Martin Schulz said on November 27 that “No options are off the table,” adding that the SPD is ready to walk away from negotiations with Angela Merkel.
Sentiment on the pound continued to improve at the Greenback’s expense, so much so that non-commercial forex traders are now net bullish on the pound.
Positioning activity on the pound, especially the influx of fresh pound longs, likely reflects the market’s reaction to the independent reports from The Telegraph and The Financial Times since both cited unnamed sources as saying that the U.K. is willing to pay up, which increases the chance for talks to proceed to the post-Brexit trade deal.
However, we now know that talks hit a snag when it comes to the Irish border issue. The most recent COT report does not yet reflect that, though.
The yen took another large chunk of ground from the Greenback. And like in the previous week, net change in positioning was driven by yen bulls and yen bears were both unwinding their respective positions, with far more bears abandoning ship.
Positioning activity likely reflects further profit-taking by yen bulls and more yen bears getting squeezed out because of falling bond yields at the time, especially after Yellen gave her dovish statement and in the wake of the FOMC minutes.
It’s also possible that yen bears who were betting on the monetary policy divergence between the Fed and the BOJ were scared off because the negative events for the Greenback at the time caused odds for a follow-up March 2018 Fed rate hike to drop.
Net change in positioning on the Swissy was only very minimal, but a closer look at positioning activity shows that both Swissy bulls and Swissy bears reduced their respective positions.
The paring of Swissy longs, that may have been due to profit-taking by Swissy bulls since SPD leader Martin Schulz likely reduced safe-haven demand for the Swissy.
As for the trimming of Swissy shorts likely shows unwinding by some Swissy bears who have been growing their positions because of the monetary policy divergence between the Fed and the SNB because, as noted when we discussed the yen earlier, odds for a follow-up March 2018 Fed rate hike fell during the week ending on November 28.
Net change in positioning on the Aussie was small. Even so, the Aussie was nudged deeper into bearish territory for the ninth consecutive week.
A closer look at positioning activity shows that Aussie longs only increased by a measly 68 contracts while Aussie short contracts saw a modest increase of 1,003.
There was no apparent catalysts for the increase in Aussie shorts, though, since risk-taking was the dominant sentiment at the time and gold prices rose during the week ending on November 28.
Kiwi bulls and Kiwi bears both bumped up their positions. The increase in Kiwi shorts was much larger than the increase in Kiwi longs, though, which is why overall sentiment on the Kiwi deteriorated for the sixth consecutive week.
The rise in Kiwi longs, meanwhile, may have been due to New Zealand’s October trade report since that showed that New Zealand’s exports surged by 20.83%, resulting in a narrower trade deficit.
Net bullish bias on the Loonie nudged slightly higher after easing for six consecutive weeks.
Positioning activity was also very minimal since Loonie longs only increased by 558 contracts while short contracts on the Loonie increased by a measly 25.
No clear reason for the lack of positioning activity, though, since there were a lot of catalysts for the Loonie during the week ending on November 28, including Canada’s disappointing retail sales report and TransCanada’s announcement that the Keystone pipeline gas resumed operations.
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.