The US dollar regained its footing following a strong NFP report, placing renewed pressure on major currencies despite crowded bearish positioning. Euro net-shorts reached an 11-year extreme, while record gross shorts on EUR/USD and AUD/USD have yet to trigger a sustained squeeze. Sterling bulls were also caught out by a sharp reversal despite the BoE's hawkish hike.
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Large Speculator Positioning from the COT report
Source: CFTC (COT), LSEG
- US Dollar: Net-longs fell $1.8 billion for a third week but remained elevated at $35.6 billion. Strong NFP sent DXY back above 102.
- Euro: Large speculator net-shorts at an 11-year extreme, gross shorts at record highs. EUR/USD bears eye the May low (1.1074), although short-squeeze risks remain.
- British Pound: Longs increased and shorts fell ahead of the hawkish BoE, only for GBP/USD to reverse sharply lower. Rising volume hints at long liquidation.
- Canadian Dollar: Gross longs rose and shorts fell before CAD reversed lower. Asset managers remained net-long, but renewed short selling is a risk.
- Australian Dollar: Record gross shorts warned of a squeeze, but bears regained control after a less hawkish RBA. AUD/USD closed below 69c.
Asset Manager Positioning | COT Report
Source: CFTC (COT), LSEG
FX Futures Positioning | COT Report (IMM Data)
US Dollar Index (DXY) Futures: Bulls Regain Control
I was coming around to the idea that the US dollar was set to rally again by Thursday – and it did not disappoint. A strong NFP report rekindled expectations of a more hawkish Fed, sending the US dollar index firmly back above 102 after having established support at its 50-day EMA during a three-wave correction.
The weekly futures chart on the left shows a bullish pin bar within a rising channel.
Exposure to the US dollar remains decidedly bullish, with a minor $1.8 billion reduction from the prior week still leaving net-long exposure above $35 billion. Combined net-long exposure to US dollar index (DXY) futures sits at 31k contracts across large speculators and asset managers.
Source: CFTC (COT), ICE, LSEG
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EUR/USD Futures: Bears Eye a Break of the May 2025 Low
The euro has failed to capitalise on the bearish sentiment extreme I warned of, amid fiscal and political instability in France, weaker PMIs and, of course, a stronger US dollar. That said, prospects of an ECB hike in December may be helping prop up EUR/USD to a degree and keep it above the May 2025 low. For now, at least.
But the daily chart shows that momentum has clearly turned lower, with bears eyeing a move towards 1.11 over the near term.
Net-short exposure among large speculators is now at its highest since December 2015, while net-long exposure among asset managers is at its lowest since October 2019. Given the prospects of a bullish US dollar breakout, an attack on and potential break beneath the May 2025 low seems a real possibility for EUR/USD, despite record levels of gross-short exposure warning of a sentiment extreme.
Source: CFTC (COT), CME, LSEG
GBP/USD Futures: Sterling Reverses Despite Hawkish BoE
Futures traders continued to increase longs and reduce shorts heading into the hawkish BoE meeting, yet GBP/USD saw a sharp reversal despite all nine MPC members voting to hike. One member also voted for a 50bp hike, while the MPC revised its CPI outlook higher to 4.9% by Q2 2027.
However, GBP/USD formed a sharp bearish reversal, likely due in part to the collapse in crude oil prices, which undermined the BoE’s inflation forecasts. A stronger-than-expected NFP report also bolstered the US dollar, sending sterling sharply lower on Friday.
Notice on the daily chart that rising futures volume coincided with Thursday’s shooting star candle, with Friday’s selloff likely seeing longs being covered and new shorts initiated. With a shooting star reversal on the weekly chart and clear bearish range expansion on the daily, it seems the swing high is in for now and the near-term trend has turned bearish.
Source: CFTC (COT), CME, LSEG
AUD/USD
AUD, NZD and CAD Futures: Commodity Currencies Come Under Pressure
Momentum has clearly turned against commodity currencies this past week, amid the risk-off tone from the AI-driven selloff on Walls Street, lower crude prices softening concerns over sticky inflation, and a strong NFP report which rekindled hawkish Fed bets.
I had warned of a sentiment extreme on AUD/USD futures, given the record level of gross-short bets. While this saw a bounce on AUD/USD from support, recent events among a slightly less-hawkish than expected RBA helped send ASUD/SUD below 69c by Friday’s close. It seems bears were right after all.
Weaker crude oil prices and stronger US dollar sent the Canadian dollar back below 0.71 despite thre recent rise of gross longs and reductions of gross-shorts. Asset managers who flipped to net-lognm exposure after the BOC’s hawkish hike may have now reverted to net-short exposure.
The RBNZ had surprised markets with a hold on October 28 – despite markets almost fully pricing one in. Note that short bets however has remained elevated and longs had been reduced, to it seems NZD/USD futures traders were already reading the room correctly, and on the right side of the market as it fell to the January 2025 – a level of interest this week.
Source: CFTC (COT), CME, LSEG
