According to calculations done by Reuters, large players became even more bearish on the Greenback since they further raised the value of their net short positions on the Greenback from $3.93 billion to $4.28 during the week ending on December 5.
And the latest Commitments of Traders (COT) forex positioning report from the CFTC shows that positioning was broadly unfavorable for the U.S. dollar, putting an end to several consecutive weeks of deteriorating sentiment on CHF, AUD, and NZD. However, the COT report also shows that the Greenback was able to push back against the Loonie and the yen.
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 December 5, 2017.
Sentiment on the Greenback likely suffered because of uncertainty related to the U.S. tax reform bill, as well as politically-charged rumors such as plans to supposedly fire Secretary of State Rex Tillerson and ABC New’s now infamous “news report” that claimed that Trump supposedly asked Gen. Michael Flynn to establish contacts with the Russians while Trump was still a presidential candidate.
And while the most recent COT report already reflects ABC News’ “correction” to its news report, the COT report does not yet reflect the decisions of the House and the Senate to start reconciling their respective versions of the tax reform bill.
Okay, here are the major events, reports, and other catalysts for the other currencies:
Positioning on the Euro was rather bullish since bears trimmed their positions while bulls slightly bumped up theirs.
This likely reflects unwinding by euro bears and cautious optimism on the part of euro bulls in reaction to the Euro Zone’s November inflation report since that showed that headline HICP accelerated from +1.4% year-on-year to +1.5%, which is still in-line with the ECB’s inflation forecast for this year.
One possible reason as to why euro bulls were not too eager to ramp up their position was SPD Leader Schulz’s statement that he “was not ruling any option out,” including walking out of German coalition talks with Angela Merkel.
The pound advanced at the Greenback’s expense for the fourth consecutive week. However, a closer look at positioning activity shows that both pound bulls and pound bears substantially raised their respective bets.
This likely shows speculative positioning on whether or not Brexit talks will see further progress after Theresa May failed to clinch a deal on December 4.
Of course, we now know that Theresa May and Juncker cooperated and were able to engineer a breakthrough in Brexit talks. Although we also know now that E.U. chief Brexit negotiator Barnier reminded everyone that this is just one stage of many when he said that “It is now up to the European Council to decide whether this constitutes sufficient progress, and to move the talks to the next stage.”
The yen took a step back after two consecutive weeks of pushing back against the Greenback, thanks to the drastic slowdown in the pace of unwinding yen shorts. Yen bulls, meanwhile, pared their positions at the usual pace.
Yen bears likely trimmed their position at a slower pace because of surging bond yields and the prevalence of risk-on vibes at the time.
As has been the case in the past few weeks, net change in positioning on the Swissy was rather modest. Positioning activity was also modest since long contracts on the Swissy only increased by 310 while 307 short contracts got trimmed.
Even so, it’s worth mentioning that sentiment on the Swissy finally saw an improvement after 11 consecutive weeks.
As to why positioning activity on the Swissy was bullish but limited, that was probably because the Swissy benefited from safe-haven flows when ABC News released its original report about Trump’s supposed orders to Flynn. However, the report was “corrected” later, which may have also weakened safe-haven demand for the Swissy.
After nine long weeks, the Aussie was finally able to retake some lost ground because the increase in Aussie longs was able to outpace the increase in Aussie shorts.
As for the increase in Aussie shorts, that was probably due to the falling gold prices at the time.
Sentiment on the Kiwi finally improved after deteriorating for six straight weeks, likely because of the 0.4% rise in the GDT price index and then acting RBNZ Governor Spencer’s speech, which was perceived as hawkish.
Bulls were not too keen to reinforce their positions, though, and that was likely due to that fact that, as Pip Diddy pointed out in his weekly recap, Spencer’s message wasn’t really new and was already revealed during the November RBNZ statement.
Bearish bias on the Loonie ramped up again after easing a bit during the previous week. Positioning activity on the Loonie was also outright bearish since Loonie bulls slashed their positions while Loonie bears added to theirs.
And positioning likely reflects disappointment over the fall in oil prices, as well as preemptive positioning the day before the BOC statement.
And we now know, that the BOC statement was a disappointment because the BOC barely recognized the recent positive economic developments in Canada and opted instead to express caution while focusing on the uncertainties.
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.