EUR/USD, gold, S&P 500 analysis: Commitment of traders report (COT)

Commitment of traders – as of Tuesday 23^rd May 2023:

• Traders reduced net-long exposure to EUR/USD futures by -13.4k contracts (-7.1%)
• Net-short exposure to JPY futures rose to a 30-week high
• Net-short exposure to CHF futures fell to just -903 contracts (lowest since September 2021)
• NZD futures traders were on the cusp of flipping to net-long exposure ahead of the RBNZ meeting

EUR/USD futures: Commitment of traders (COT)

We highlighted the potential for a sentiment extreme on EUR/USD futures, and it appears as though bulls are seriously questioning their net-long exposure. A combination of trimmed longs and new shorts saw net-long exposure decline for the first week in six, and at its fastest pace in nearly a year at -13.4k contracts (or -7.1%). 8.7k long contracts were closed and 4.7k long contracts were added. And we see the potential for further longs to be closed out in the week/s ahead, as bets on a 25bp Fed hike in June now sit at an ~655 probability, according to Fed Fund futures pricing.

Commitment of traders – as of Tuesday 23^rd May 2023:

• Net-short exposure to the S&P 500 futures printed its second most bearish level on record
• Net-long exposure to Nasdaq and Dow Jones futures were trimmed for a second week
• Large speculators were their most bearish on the 10-year bond futures contract on record

S&P 500 futures: Commitment of traders (COT)

Like EUR/USD, we have been warning of a potential sentiment extreme on the S&P 500 futures market. Last week, large speculators were their most bearish on S&P 500 futures at their second highest level on record, since late 2007. However, if we look closer at the data we can see that short-covering has mostly explained the rise in prices over the past 10 weeks and long exposure has remained mostly flat. But with such extreme positioning it still leaves plenty of room for further gains if shorts cover and / or longs join the party. We have a three-day weekend in the US so markets are closed on Monday, and that leaves four more days this week to see if the S&P 500 can break above last week’s high and make a run for the August 2022 high.

Commitment of traders – as of Tuesday 23^rd May 2023

• Large speculators trimmed net-long exposure to gold for a second week (fastest weekly pace in three months)
• Managed funds reduced bet-long exposure to gold futures for a third week
• Net-short exposure to palladium futures rose to a 4-week high

Gold futures (GC): Commitment of traders (COT)

The deal that had to happen looks set to actually happen, and that means gold will lose some of its appeal as a safe-haven asset. But we’ve already seen traders anticipate this over the last couple of weeks, with large speculators and managed funds trimming gross long exposure to gold and increase short bets. And with Fed Fund futures now implying an ~65% chance of a Fed hike in June, the US dollar was allowed to rise for a third week and weigh on gold prices. However, there is strong technical support around 1934 which helped it retrace, despite the stronger US dollar. And we see the potential for a corrective bounce to the 1950 – 1960 area before we see a break support.