EUR/USD, AUD/USD, USD/JPY analysis: Commitment of traders report (COT)

Large speculators increased their net-short exposure to the major commodity FX pairs AUD/USD, NZD/USD and CAD/USD. An increase in longs and reduction of shorts saw net-short exposure to AUD/UUSD rise to an 80-week high, and traders increased net-short exposure to CAD futures to an 11-week high ahead of the BOC meeting. Given the hawkish statement and strong employment report, I suspect some bears will be questioning their exposure. And at -14k contracts net-short against NZD/USD futures, traders were their most bearish in nearly a year (46 weeks).

Managed funds and large speculators trimmed their gross-short exposure to gold for a second consecutive week, and increased their long exposure. They also increased gross short bets against EUR/USD, although given it has now fallen for eight consecutive weeks then we could be nearing a potential inflection point for the euro.

Commitment of traders – as of Tuesday 5 September 2023:

Euro dollar futures (EUR/USD) – Commitment of traders (COT):

Large speculators and managed funds remain heavily long EUR/USD futures, although a rise in short bets among both groups of traders is dragging net-long exposure lower. With an ECB meeting and US inflation report on tap this week, it could provide further reason for bears to enter should CPI come in higher then expected or the ECB deliver a more dovish message than expected (alongside an interest rate hold). However, given EUR/USD has fallen for eight consecutive weeks, we could be at or near a potential inflection point for EUR/USD.

Japanese yen futures (USD/JPY) – Commitment of traders (COT):

BOJ governor seems to be laying the groundwork for the central bank to hike rate following his comments n a Japanese newspaper over the weekend. It’s unlikely that the BOJ will hike rates any time soon, but these comments alongside remarks from other officials over the past week should serve as a cautionary tale for bullish speculators around these highs, given the probability of intervention rises with each tick towards 150.

It is therefore interesting to note that large speculators increased their gross-long exposure to JPY futures by around 50% ahead of his comments. And if JPY/USD begins to rise, it then means that USD/JPY is set to fall.

And with expectations for US inflation to rise this week, it could set the stage for a softer US dollar should inflation undershoot relative to expectations.

Australian dollar futures (AUD/USD) – Commitment of traders (COT):

AUD/USD managed to hold above trend support despite a slew of weak economic data from China last week. Yet asset managers pushed their net-short exposure to a new record high and large speculators increased their net-short exposure to an 80-week high, following the RBA’s decision to hold interest rates at 4.1% on Tuesday.

And with so many bearish bets at steak, bears will want to see the Aussie break key support levels sooner than later. Otherwise they may be forced to cover and help trigger a countertrend move higher. With US inflation and a host of data from China scheduled this week, we may have a better idea by Friday as to whether AUD/USD can rally from current levels or simply break lower.

WTI Crude oil futures (CL) - Commitment of traders (COT):

Managed funds and large speculators continued to increase their net-long exposure last week, with both groups of traders increasing gross longs and reducing gross shorts. Large speculators were their most bullish on WTI crude oil futures in 62 week, and managed funds were their most bullish in 64 weeks. And given prices remain relatively low compared to their 2022 peak and OPEC+ are intent of supporting prices, we could potentially see WTI crude oil prices rise back above $100.