FX Futures Positioning: USD Longs Stay Stretched, Yen Bears Retreat | COT Report

Only minor adjustments were made to FX futures exposure across the majors last week, outside of the yen. US dollar positioning remained heavily net-long, while yen bears continued to retreat for a second week following joint intervention. Elsewhere, positioning changes were relatively modest across the euro, British pound, Australian dollar, Canadian dollar and Swiss franc.

View related analysis:

USD Longs Stay Stretched as Yen Bears Continue to Retreat

Large Speculator Positioning from the COT report

Source: CFTC (COT), LSEG

US Dollar: Futures traders remained heavily net-long USD by $35.5 billion, trimming just $0.4 billion from the prior week.
EUR/USD: Net-long exposure rose by 6k contracts among asset managers, though large specs increased their net shorts by 2k.
GBP/USD: Net-short exposure was reduced by a combined 8k contracts across large specs and asset managers.
USD/JPY: Net-short exposure was trimmed by a combined 32k contracts across large specs and asset managers.
USD/CHF: Traders remained net-short the Swiss franc by a combined 32k contracts.
USD/CAD: Asset managers reduced their net-short exposure by 5.7k contracts.
AUD/USD: Traders remained net-short the Australian dollar, with only minor adjustments to positioning across large specs and asset managers.

Asset Manager Positioning | COT Report

Source: CFTC (COT), LSEG

For traders wanting a deeper understanding of futures positioning, I’ve also published a guide on how to read and interpret weekly COT data in forex markets.

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FX Futures Positioning | COT Report (IMM Data)

US Dollar Index (DXY) Futures Positioning | COT Report

Net-long exposure to the US dollar remains arguably stretched among large speculators, with its three-year, one-year and three-month percentile ranks all remaining above 90. That said, their net-long exposure fell by 1k contracts on the week to 21.4k, from its four-year high.

Asset managers trimmed their net-long exposure for a second week to 16.5k contracts, though it remains arguably high considering recent price action. But with US data slowly deteriorating and the US dollar index down 2.3% from its 17-month high, I suspect the upcoming COT report will reveal a less bullish picture among futures traders.

Source: CFTC (COT), ICE, LSEG

EUR/USD Futures Positioning | COT Report

While large speculators technically increased their net-short exposure to the euro by 1.9k contracts to 60k, they are still less bearish than they were two weeks ago at their 20-month peak. Asset managers also increased their net-long exposure by 6.1k contracts, meaning bullish exposure between the two sets of traders increased by 4k contracts.

Still, it is that time of year and volatility remains low, which is being reflected in the lack of any real change to FX exposure.

Ultimately, I continue to suspect we saw a decent swing low on the euro back in June and that traders may be approaching EUR/USD with a ‘dip’ mentality.

Source: CFTC (COT), CME, LSEG

USD/JPY Futures Positioning | COT Report

The closure of yen shorts continued for a second consecutive week following the joint intervention in the currency. While the pace of short covering has slowed, it remains pretty decent. Asset managers reduced their gross shorts by 16.8k contracts (-14.5%), while large speculators reduced theirs by 16.4k contracts (-8.5%), for a combined 32k contracts of short covering.

Despite this, yen futures were lower last week. But with a clear bullish range-expansion candle at multi-decade lows, alongside stretched market positioning ahead of the bullish reversal, I suspect the yen may have troughed for the year. And that translates to USD/JPY having potentially topped.

Source: CFTC (COT), CME, LSEG

AUD/USD Futures Positioning | COT Report

The Aussie continues to defy bearish futures positioning, with AUD/USD holding firm despite traders remaining net-short. Large speculators remain moderately bearish, with their three-year percentile rank at 63.8%, although their three-month rank has fallen to just 8.3%. Asset managers are also net-short, with their one-year and three-month percentile ranks sitting at zero, showing positioning at the lower end of its recent range.

With Australian employment data approaching, the report could provide the next catalyst for AUD/USD. A softer set of figures could further reduce expectations of another RBA hike and weigh on the Australian dollar, while stronger data could keep the prospect of further tightening alive and leave bearish futures traders vulnerable.

Source: CFTC (COT), CME, LSEG

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-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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