FX Futures Positioning: USD Falls, CAD Strengthens, JPY Shorts Return | COT Report

The latest COT report shows traders trimming US dollar exposure, rebuilding Canadian dollar longs and cautiously returning to Japanese yen shorts. However, the positioning data predates Wednesday’s sharp USD selloff, leaving Jackson Hole as the next major test for FX markets.

 

 

 

USD Weakness, CAD Strength and JPY Shorts Shape FX Positioning

Large Speculator Positioning from the COT report

Source: CFTC (COT), LSEG

 

• US Dollar: Net-long exposure was trimmed for a third week, though only by $1.2 billion to $34.3 billion.
• EUR/USD: Asset managers increased net longs by 12k contracts to a five-week high of 23.7k.
• GBP/USD: Net shorts were trimmed for a third week to 54.5k among large speculators and 117.2k among asset managers.
• USD/JPY: Post-intervention positioning saw the first increase in net shorts to the yen among large speculators, by 10.8k contracts.
• USD/CHF: Net shorts to the Swiss franc were trimmed by a combined 6k contracts.
• USD/CAD: Net-short exposure to Canadian dollar futures fell by a combined 30.2k contracts.
• AUD/USD: Large speculators and asset managers increased net shorts by a combined 10.4k contracts despite a rising Australian dollar.
• NZD/USD: Gross shorts continued to trend lower, reducing net shorts to the Kiwi to a 21-week low among asset managers.

 

Asset Manager Positioning | COT Report

Source: CFTC (COT), LSEG

 

 

 

 

 

FX Futures Positioning | COT Report (IMM Data)

US Dollar Index (DXY) Futures Positioning | COT Report

While the reduction in net-long exposure to the US dollar continued, its pace doesn’t appear as fast as it should. With net-long exposure at $34.3 billion, it remains just $14.2 billion below its 11-year peak, and most of the long covering occurred in the first of the past three weeks. However, the COT data is only accurate up to last Tuesday’s close, so it does not capture Wednesday’s 0.8% decline after the US Treasury announced its buyback plan.

With the US dollar index holding above support despite currency intervention and the US Treasury’s buyback plan, traders had appeared reluctant to abandon dollar longs heading into this week’s Jackson Hole meeting. Fed Chair Kevin Warsh’s speech on Friday is the main event for global markets.

Still, asset managers trimmed their net-long exposure to US dollar index futures for a third week, with bullish exposure just shy of 15k contracts. Large speculators also trimmed their net-long position for a second week, to 19k contracts.

Source: CFTC (COT), ICE, LSEG

 

 

 

USD/JPY Futures Positioning | COT Report

Futures traders dared to poke the bear last week, with a slight increase in gross shorts against the Japanese yen after two weeks of solid short capitulation. While large speculators only increased gross shorts by 5.5k contracts, it suggests a slight air of complacency despite the MOF delivering two rounds of intervention with the backing of the US Treasury, and vowing to do so again.

The weekly Japanese yen futures chart shows a shooting star candle formed two weeks ago, with prices now roughly a third lower than their intervention rally peak. Regardless, I continue to suspect we have seen the low for the yen this year, which, if correct, means USD/JPY has topped.

Source: CFTC (COT), CME, LSEG

 

 

USD/CAD Futures Positioning | COT Report

Improving economic data and rising crude oil prices this month have seen the 9-month OIS fully price in a single 25bp hike, while the 1-year has begun to price in a second. That likely spurred futures traders to reduce their net-short exposure to the Canadian dollar for a second week. Specifically, net shorts were reduced by a combined 30.2k contracts, with gross longs rising 11.4k (36%) among large speculators and 10k (79%) among asset managers.

However, the Canadian dollar has already been rising for seven weeks, meaning USD/CAD has been falling throughout this period. That suggests futures traders have been reacting to the move rather than anticipating it. A fly in the ointment is the weekend headline that US-Canada trade talks have broken down, which saw USD/CAD rise 0.3% at the week’s open. But with bearish momentum still favouring USD/CAD and TACO remaining an option, bears may look to fade rallies if Jackson Hole delivers a weaker US dollar.

Source: CFTC (COT), CME, LSEG