Large speculators boosted their net favorable bets on the Greenback during the week ending on March 14, since the value of net long bets on the Greenback surged from $15.26 billion to $17.59 billion, according to calculations done by Reuters.
However, the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback advanced mainly at the expense of the pound and the yen while getting significant push-back from the euro.
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.
Oh, please keep in mind that the numbers below show the net positioning of non-commercial forex traders against the U.S. dollar.
And here is how positioning activity played out during the week ending on March 14, 2017.
Net bullish bets on the Greenback surged for the second consecutive week, as of the week ending on March 14.
And demand for the Greenback was very likely sustained by preemptive positioning ahead of the March FOMC statement, given that the February NFP report was solid enough to cement expectations that the Fed will hike and perhaps even communicate a faster pace of tightening.
Of course, we now know that the Fed did hike but maintained its economic forecasts and projections for the Fed Funds Rate.
Anyhow, the COT forex positioning report shows that the Greenback demand was broad-based yet again. Positioning activity was therefore being influenced by demand for the Greenback yet again.
However, the Greenback took substantially larger chunks of ground from the pound and the yen while losing a lot of ground to the euro. Also, the Swissy defied the Greenback yet again. Positioning activity was therefore very likely also influenced by catalysts for each respective currency.
Major events, reports, and potential catalysts for other currencies:
Non-commercial traders were extremely bullish on the euro since they increased their long euro bets and slashed their short euro bets knowing that the FOMC statement was heading their way.
In fact, the euro saw the second largest net change in positioning. As to why large players were very bullish on the euro, that was very likely a reaction to the not-so-dovisdh ECB statement. You see, the ECB upgraded its economic projection for the Euro Zone.
Moreover, ECB’s Draghi said that the chance for further rate cuts is now lower while there is “no longer that sense of urgency in taking further [stimulative] actions.”
Also, there were rumors floating about at the time that the ECB talked about hiking rates before their QE program ends. Although there were also other reports floating about that such discussions were only brief and did not get broad support from ECB officials.
Positioning activity on the pound appeared extremely bearish since pound longs got drastically cut down by a whopping 19,480 contracts. Meanwhile, pound shorts got a boost.The drastic reduction in pound longs (and fresh pound shorts) were very likely due to profit-taking by pound longs after the Brexit Bill got passed on March.
This paves the way for Theresa May to start the formal process for an actual Brexit by triggering Article 50 of the TEU.
Positioning activity also probably reflected jitters over the possibility of another Scottish independence referendum.
Do note, however, that the most recent COT report does not yet reflect positioning activity in the wake of the March 16 BOE statement.
Kristin Forbes unexpectedly voted for a rate hike, with “some” MPC members saying that “it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted.”
Positioning activity on the yen was very similar to the pound. Although in the yen’s case, yen bulls culled some of their bets while yen shorts really pumped up their bets.
Positioning activity likely shows some profit-taking by some yen bulls and preemptive bets by yen shorts in the expectations that the FOMC statement would cause bond yields to spike higher, weakening the yen. Of course, we now know that the opposite happened.
Other than that, positioning activity also likely showed preemptive positioning ahead of the BOJ statement in the expectations that the BOJ may ramp up its bond purchases to keep the yields of 10-year JGBs close to around 0%, or perhaps make adjustments to its monetary policy framework.
However, we now know that the BOJ statement was a dud since the BOJ maintained its current monetary policy. Also, Kuroda said during the press conference that the BOJ’s “yield curve control is functioning smoothly” and is expected to do so in the future.
The Swissy took ground from the Greenback for the second consecutive week. And that was likely because of the prevalence of risk aversion at the time, not to mention risk events such as the path for an actual Brexit now being clear, the possibility of another Scottish independence referendum, and election jitters in continental Europe.
Large speculators are still net long on the Aussie, but net bullish bets on the Aussie took another hit.
However, a closer look at positioning activity shows that both Aussie longs and Aussie shorts were abandoning ship.
It just so happens that more Aussie longs called it quits than Aussie shorts.
As to why more longs were running away, that was likely due to sliding commodities at the time, as well as expectations that a rate hike from the Fed may trigger capital flows in favor of the U.S. but at the expense of Australia, due to the narrower interest rate differentials.
Positioning activity on the Kiwi was similar to the Aussie in that both bulls and bears reduced their respective bets, with more bulls bailing out than bears.
And similar to the Aussie, positioning activity on the Kiwi was also likely influenced by the commodities rout and the expected narrowing in interest rate differentials.
Positioning activity on the Loonie was a repeat of the previous week’s positioning activity, since both Loonie longs and Loonie shorts both reinforced their positions.
There was a rather large increase in fresh Loonie shorts, though, which easily overwhelmed the fresh long bets on the Loonie.
The fresh longs on the Loonie were likely a reaction to Canada’s solid jobs report, as well as lingering optimism that oil will continue to rise because of OPEC’s oil cut deal.
The large increase in Loonie shorts, meanwhile, was probably a mix of Greenback demand at the expense of the Loonie and falling oil prices.
Growing fears that the oil glut is still around because of the rise in U.S. oil inventories, as well as concerns that U.S. oil output is offsetting whatever positive effect the OPEC oil cut deal has.
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.