Asian Open: Traders Added $2.7 Billion to Net-Long Dollar Exposure

Traders increased their bullish exposure the dollar for a sixth consecutive week, taking their bullish exposure to a 17-month high.

Charts (2)

Asian Futures:

  • Australia's ASX 200 futures are up 19 points (0.26%), the cash market is currently estimated to open at 7,411.60
  • Japan's Nikkei 225 futures are up 140 points (0.51%), the cash market is currently estimated to open at 27,423.59
  • Hong Kong's Hang Seng futures are down -41 points (-0.16%), the cash market is currently estimated to open at 25,920.03

UK and Europe:

  • UK's FTSE 100 index fell -46.12 points (-0.65%) to close at 7,032.30
  • Europe's  Euro STOXX 50 index fell -27.47 points (-0.67%) to close at 4,089.30
  • Germany's DAX index fell -96.08 points (-0.61%) to close at 15,544.39
  • France's CAC 40 index fell -21.01 points (-0.32%) to close at 6,612.76

Friday US Close:

  • The Dow Jones Industrial fell -149.03 points (-0.42%) to close at 34,935.47
  • The S&P 500 index fell -23.89 points (-0.55%) to close at 4,395.26
  • The Nasdaq 100 index fell -88.466 points (-0.59%) to close at 14,959.90

Wall Street enjoyed a 6-month winning streak:

It was a bearish close on Friday for US major indices due to a surprise weak sales forecast from Amazon (AMZN), which saw their stock price fall -7.6% and weigh on Wall Street’s sentiment. Still, it’s been 6 consecutive months of gains for US equities which remain near their record highs, although the S&P 500 did print a relatively small bearish weekly candles. It’s hardly a menacing sign of a market top and may simply represent a pause in trend. The S&P 500 fell -0.54%, the Nasdaq was down -0.59% led by industrial stocks (-2.25%) and banks (-1.125%).

The STOXX 600 however appears to be the stronger index after finding support at its 10-day eMA after printing a new record high on Thursday.

Conversely, Asian equities are on the ropes despite their ‘cute’ pullbacks on the orders of Beijing. The Nikkei 225 closed beneath its 200-day eMA on Friday although just above its 50-week eMA. Should that give way then things could turn ugly.

The ASX 200 closed below 7400 and printed a bearish pinbar on the weekly chart. Yet given its bullish structure overall it points towards a minor pullback at this stage, if anything at all.

From the Weekly COT Report (Commitment of Traders)

From Tuesday 27th July 2021:

  • Traders added US $2.65 billion to net-long dollar exposure last week, according to data compiled by IMM. This is the 6th weekly increase and take bullish exposure to a 17-month high.
  • Net-long exposure to the US dollar index (DXY) rose for a 4th consecutive month and now sits at a 14-month high. Gross longs are also rising whilst shorts close out to show a healthy rise on net-long positioning.
  • AUD traders were net-short for a 10th consecutive week and at their most bearish level since June 2020.
  • Large speculators are their least bullish on CAD futures since April 2021 as long continues to cover, taking gross long exposure to its lowest level since March 2021.
  • Traders were net-short British pound futures for a second consecutive week and their most bearish this year. However, this is a function of longs closing out, as gross short exposure remained effectively flat.
  • Gold and silver positioning continue to diverge. Net-long exposure for silver futures fell for a 3rd consecutive month whilst net-longs for gold increased for a 4th month.
  • Copper continues to gain bullish interest with net-long exposure rising by 17.1k contracts – its largest weekly gain since December 2019.

Safe-haven currencies remained in demand in July:

The Swiss franc and Japanese yen were the strongest currencies in July thanks to several bouts of risk-off and equity selloffs. The US dollar index (DXY) fell -0.8% during its worst week in 3-months and printed a bearish engulfing candle. It managed to recoup most of Thursday’s losses by Friday’s close and settled the week back above 92.0. So, is the retracement complete? Not necessarily. The drop from 93.2 was pretty much in a straight line and corrections rarely (if ever) play out like that. So, we’ll seek bearish setups below 95.50 in mind this week.

USD/CAD bounced off-of 1.2420 support and printed a bullish inside candle as part of a corrective phase. Like DXY, we’ll look for bearish setups beneath resistance levels.

The Australian dollar (AUD/USD) did not take advantage of dollar weakness, as it formed a bearish engulfing candle on the daily chart below a key resistance level and 20-day eMA. It’s possible we’ve seen the end of a 3-wave correction against its bearish trend, so our next target is around the 0.7250 support zone. A break above 0.7415 invalidates our bearish bias.

AUD/CAD continued lower in line with our bearish bias and is on track for the 0.9065 – 0.9100 target.

China’s manufacturing PMI came in below expectations over the weekend, expanding just 50.4compared with 50.8% expected and down from 50.9. It is the slowest level in 17-months as rising raw material costs and floods weighed on the headline figure.

Silver stalls at resistance, CRB commodity index stumbles at its highs:

The Thomson Reuters CRB commodity index appeared to be embarking upon its next leg higher. Yet Friday’s bearish engulfing candle which took prices back to the 217.72 breakout level casts a shadow of doubt over the near-term. Should prices break back below the breakout level (which is a previous record high) then a corrective love is likely to be underway.

Gold failed to break above 1834 resistance, instead opting to fall back to the midway point of 1790 to 1834. The bullish bias is not over, but it is in pause mode for now. Friday’s candle was an inside day so perhaps we’ll see prices compress and hold above 1800 before bulls attempt another crack of a break above 1864.

Silver’s ‘rebound’ has paused below the broken trendline on the daily chart and the 25.45 – 25.75 resistance zone. Its next directional move over the near-term remains unclear but, taken in contest that traders continued to be wary of long bets last week on silver, a topping pattern remains a potential scenario. 

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