US dollar bulls remain firmly positioned in the futures market, with aggregate net-long exposure holding near $40 billion despite a modest reduction last week. Yet record short exposure to euro futures has failed to push EUR/USD below its May low, raising the prospect of a short-covering rally that could take the edge off the dollar's strength. Meanwhile, yen bulls are regaining momentum, adding to potential USD/JPY reversal risks ahead of this week's central bank meetings.
View related analysis:
- Australian Dollar Outlook: AUD/USD Screams Sentiment Extreme Into Fed, CPI
- NZD/CAD Ponders Swing Low Ahead of BoC, RBNZ as Hike Bets Firm
- FX Futures Positioning: US Dollar Bulls Face Crowded FX Shorts
- Japanese Yen Surges Across FX Majors as Risk Aversion Intensifies
COT Report Reveals Resilient Dollar Bulls and Euro Squeeze Risks
Large Speculator Positioning from the COT report
Source: CFTC (COT), LSEG
- US Dollar: Futures traders remained heavily net-long USD at $39.3 billion, despite a minor reduction of $4.3 billion from the prior week
- EUR/USD: Only minor adjustments to euro futures saw large specs remain net-short by around 134k contracts
- GBP/USD: Net-shorts fell 26.5k contracts among large speculators, the fastest weekly pace since December
- USD/JPY: Net-long exposure among asset managers reached a 1-year high of 79k contracts
- USD/CHF: Gross-longs surged to a record high of 26.7k contracts among asset managers, pulling net-shorts to a 17-month low of 25.5k contracts
- USD/CAD: Asset managers were on the cusp of flipping to net-long exposure, with net-shorts falling a combined 45k with large speculators
- AUD/USD: Large secs and asset managers pushed net and gross-shorts to a fresh record high, hinting at a sentiment extreme
- NZD/USD: Net-shorts rose to a 14-week high despite New Zealand dollar futures rising for a second week
Asset Manager Positioning | COT Report
Source: CFTC (COT), LSEG
US Dollar Bulls Remain Firm Despite Dip in Futures Exposure
While net-long exposure fell by $4.3 billion, let’s not lose sight of the fact that futures traders remained net-long the US dollar by nearly $40 billion in aggregate. Large speculators and asset managers also held a combined net-long exposure to the US Dollar Index of around 32k contracts. And looking at gross exposure to DXY, short interest remains relatively low – and was also slightly reduced from the prior week.
These are not particularly bearish signals for the US dollar from futures traders overall, and a major reason why I do not anticipate a deep pullback on the US Dollar Index. We may find that the Fed is not as hawkish as some expect, which could result in a weaker USD – but I am not expecting the mighty dollar to simply roll over at this stage.
Source: CFTC (COT), ICE, LSEG
EUR/USD Holds Above May Low Despite Record Futures Shorts
What might complicate the outlook for the US Dollar Index is the euro’s inability to break its May low. We’ve already seen a strong decline in the euro, yet it continues to hold above that low despite gross-short exposure among large speculators surging to a record high. If prices cannot go down amid such bearish positioning, it leaves the euro vulnerable to a bounce if conditions improve even slightly.
If the euro does see a short-covering rally from around these cycle lows, the US Dollar Index might be looking at a deeper pullback after all. But simply holding its ground around current levels could take the edge off the dollar rally.
Source: CFTC (COT), CME, LSEG
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Yen Bulls Regain Momentum as USD/JPY Faces Reversal Risk
The weekly yen futures chart shows bullish range expansion and a potential three-bar reversal pattern known as a morning star. This translates to the bearish equivalent – an evening star – on USD/JPY. With long bets trending higher while short bets diminish, perhaps USD/JPY can continue lower in the coming weeks.
Source: CFTC (COT), CME, LSEG
AUD Shorts Hit Records, NZD/CAD Eyes Potential Rebound
Momentum defied AUD/USD bears last week, with prices turning higher from support despite gross and net-short exposure to Aussie futures hitting fresh record highs. With hawkish RBA comments on Sunday, a slightly hotter CPI print could cement bets on a fifth hike and potentially shake out more bears.
A similar pattern emerged in NZD/USD futures, which rose for a second week despite gross shorts also reaching a record high. And with the RBNZ potentially delivering a hawkish hold, it could prompt more NZD/USD bears to question their positioning.
Canadian dollar bulls pushed their gross-long exposure to a 16-year high ahead of this week’s BoC meeting. I have a suspicion the BoC may not be as hawkish as the RBNZ, which raises the potential for a swing low on the NZD/CAD weekly chart.
Source: CFTC (COT), CME, LSEG
