FX Futures Positioning: US Dollar Bulls Face Crowded FX Shorts

Futures traders increased their bullish US dollar exposure for a fourth consecutive week, while bearish bets against the euro, pound and Australian dollar reached fresh extremes. Yet signs of stabilisation across several FX majors suggest the potential for some mean reversion, particularly as the US dollar index shows signs of losing momentum. However, with further Fed tightening still a possibility, any recovery against the greenback could be limited.

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US Dollar Bulls Face Extreme Short Positioning Across FX Majors

Large Speculator Positioning from the COT report

Source: CFTC (COT), LSEG

US Dollar: Futures traders increased net-long exposure by $9.4 billion to $43.6 billion.
EUR/USD: Large speculators increased their net-short exposure by 38.2k contracts to a 10-year high.
GBP/USD: They also pushed net-shorts to a nine-year high of 107k contracts, just shy of a record level of short interest.
USD/JPY: Asset managers increased their gross-long exposure to the Japanese yen to a record high of 146k contracts.
USD/CHF: The Swiss franc was another currency to see gross-long exposure rise to a record high among asset managers.
USD/CAD: Net-short exposure increased for a fourth week among large speculators, but at a slower rate of just 4.6k contracts.
AUD/USD: Net-short and gross-short exposure reached record highs among large speculators and asset managers.
NZD/USD: Net-shorts increased for a fourth week among both sets of traders to a combined 91k contracts.
NZD/USD: Dovish minutes hinting at a central bank rate cut sent net-short exposure among asset managers to a record high.

Asset Manager Positioning

Source: CFTC (COT), LSEG

FX Futures Positioning | COT Report (IMM Data)

US Dollar Index (DXY) Futures Positioning

A four-week bullish streak was snapped on Friday, with a bearish outside candle (and inverted hammer) forming on the weekly chart. The fact it occurred around the upper boundary of its trend channel hints at a near-term top for the US dollar index.

Expectations of an October Fed hike have weakened, though the threat of further tightening remains. Any pullback on the USD may therefore be limited while incoming data keeps that threat alive.

Futures traders also increased their net-long exposure for a fourth week to $43.6 billion, up $9.4 billion from the prior week. So while a slight bearish divergence is forming in asset managers’ net-long positions, I suspect any pullback in the USD could be shallow for now. And that means rallies in major currencies against the dollar could also be limited.

Source: CFTC (COT), ICE, LSEG

EUR/USD Record Speculator Shorts Hint at Potential Rebound

We have seen the euro decline around 8% from its January high to last week’s low. Bears have been piling into short EUR/USD futures positions, with large speculators hitting a record high in gross shorts. Yet asset managers have eased off from their own record high in gross shorts. Also note that their gross longs are trending higher.

This adds a little more weight to the small bullish hammer candle on the EUR/USD weekly chart, just above the May low. Of course, it likely remains in the Fed’s hands as to how far the euro can bounce from here. Either way, some mean reversion from an oversold market is a potential scenario over the near term.

Source: CFTC (COT), CME, LSEG

Swiss Franc Bulls Build Positions at Pivotal Support

1.20 seems to be a pivotal level for the Swiss franc, given it capped prices as resistance in 2024, acted as support in 2025 and seemingly again last week. A bullish hammer formed at this pivotal level, accompanied by a strong surge in gross-long exposure among asset managers and large speculators.

While both sets of traders remain net-short by a combined 53.5k contracts, their net bearish exposure is trending lower. So with the Swiss franc at support and bullish bets building, perhaps we could be looking at a rebound for the Swiss franc – which translates to a pullback in USD/CHF. But like the euro, its success hinges on Fed expectations.

Source: CFTC (COT), CME, LSEG

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Commodity FX: AUD/USD Looks Vulnerable as CAD and NZD Stabilise

Commodity FX also showed signs of sentiment extremes against the US dollar. Gross longs have been trending higher for several weeks in CAD futures before prices finally made a swing low last week. A similar pattern emerged in NZD/USD, though instead we saw gross shorts rise to levels usually associated with extremes.

The odd one out is AUD/USD, which is now testing the neckline of a long-term head and shoulders top, while gross shorts hit another record high. The Aussie seems to be the weaker of the three, which could suggest short opportunities in AUD/NZD and AUD/CAD if crosses are preferred.

Source: CFTC (COT), CME, LSEG

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