Weekly COT Report: Traders Remain Wary Of King Dollar
Matt Simpson July 15, 2019 5:01 AM
As of Tuesday 15th July 2019:
- Traders were net-long USD $12.38 billion ($16.95 against G10 currencies), up by $0.1 billion to snap a five-week streak of long reduction
- Large speculators have been net-long CAD for two consecutive weeks, and at their most bullish level since March 2018
- Traders are the most bearish on GBP since August 2018
- NZD bulls trimmed gross long positions for s seventh consecutive week
USD: Traders have reduced long exposure to USD by -59.8% (or $17.4 billion) over the past 8 weeks, which around their least bullish exposure since January 2018. In dollar terms, traders are the most bearish against GBP and EUR, and currently long by $5.7 and $5.0 billion USD respectively.
CAD: Traders have been net-long CAD for two weeks, breaking a 50-week streak of net-short exposure. Whilst short-covering has subsided, gross longs increased for a third week and are now at their highest level this year. However, CAD’s 1-year Z-Score has spiked above +2 standard deviations to warn of exhaustion. Historically, this has coincided (thereabouts) with a top in CAD futures. Whilst this does not guarantee a reversal (especially since positioning is anything but over-extended) it is something to keep in mind going forward.
GBP: It’s up for debate as to whether we’re at a sentiment extreme. Traders are net-short -80k contracts, similar to levels in September 2018 when bearish exposure troughed. However, by historical standards, GBP has been over 100k contracts short before hitting a reversal and with politics continuing to weigh on Sterling, we’re not confident enough to say it can’t go down further. Gross shorts are currently at -109k but we’ve seen traders short by -150k before a reversal. Perhaps this is not a trend with fighting just yet.
JPY: Last week traders were on the cusp of flipping to net-long exposure, at just -1.3k contracts net-short exposure. However, bearish exposure has increased with +3.6k long contracts initiated, and the 1-year Z-score is +2.15 standard deviations to suggest it could be reaching an inflection point. If so, we could see net-short exposure increase which could imply a period of risk-on awaits. We’d need to see USD/JPY break above 109.02 to confirm.
As of Tuesday 15th July 2019:
- Net-long exposure for gold declined for the first time in five weeks
- Bullish exposure for WTI was trimmed by -2.6k contracts
- Traders were their most bearish on copper since April 2018
- Large speculators are their most bullish on palladium in 4 months
Gold: Sentiment remains overwhelmingly bullish for gold. And by some measures, perhaps too bullish. There are currently 4.9 longs to every short, similar to levels seen mid-2016 when gold prices topped out. And its 1-year Z-score is +2.45 standard deviations, again last seen around mid-2016 when prices topped out. Whilst the core bias is bullish for gold, we suspect we need to ride out a retracement first. And looking at how volatility has risen around the $1400 area, we’d suggest caution around current levels until prices suggest a higher low has formed.
WTI: Net-long exposure was trimmed by -7.5k contracts. Over the past 11 weeks, net-long exposure has been trimmed 10 of them, which is hardly a compelling bull-case. Whilst there are still 4.4 longs to every short, we’re not seeing fresh longs initiated to support a bullish theme, meaning out bias leans towards choppy price action over the near-term.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.