EUR/USD, Gold Analysis: Commitment of traders report (COT) – 14th August 2023

Last week traders saw a notable increase in short bets against EUR/USD futures, with gross shorts rising 15% and -5% longs being culled. Whilst this has put the 3-month and 1-year percent rank near range lows, I do not believe it to be a sentiment extreme given the relatively high readings for net-long exposure in recent months.

Whilst Fed Fund pricing continues to suggest ~90% probability that the Fed will hold rates steady in September, large speculators have increased their net-exposure to the futures contract to a 9-week high, to show rising expectations of a potential hike.

There’s been a notable pickup of short interest for key metals gold and silver. In fact, managed funds flipped to net-short exposure to silver futures having trimmed longs for three weeks whilst simultaneously increasing short bets. It’s also looking likely that 1900 may be challenged looking at the positioning of large speculators and managed funds, both of which increased short and reduced long exposure.

Commitment of traders (forex) – as of Tuesday 8^th August 2023:

• Gross-short exposure among large speculators was increased by 15% and shorts were reduced by -5%
• The largest weekly change among forex majors was net-long exposure to EUR/USD being reduced by -22.3k contracts
• Large speculators were their least bullish on the US dollar index (DXY) futures contract since June 2021
• Large speculators flipped to net-short exposure to NZD and CAD futures contracts
• Asset managers increased gross-short exposure to NZD futures by 50.6% and trimmed shorts by -19%
• Net-short exposure to AUD/USD and CHF/USD futures fell to a 6-week and 50week low, respectively

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

Net-long exposure among large speculators fell for a third week, whilst spot prices fell for a fourth. What makes it more significant is that we have now seen them reduce gross longs for three weeks, and increase shorts at the fastest weekly pace in seven, and at its third fastest pace this year. And if we continue to see economic data from Europe weaken, it could weigh further on EUR/USD. Key data points include the ZEW economic sentiment report on inflation for the eurozone.

Commitment of traders (indices, bonds) – as of Tuesday 8^th August 2023:

• Large speculators were net-long DJI futures for a third week (and at their most bullish level since January 2022
• They were also net-short Nasdaq 100 futures for a third week
• Traders were their most bearish on the 30-day Fed Fund Futures contract in nine weeks

Commitment of traders (commodities) – as of Tuesday 8^th August 2023:

• Large speculators on gold reduced longs by 10.1k contracts (-4.2%) and increased shorts by 11.8k contracts (+15.9%)
• They also reduced long exposure to silver futures by -21.4% and increased shorts by 7.5%
• Net-long exposure among large speculators increased to 38 weeks, managed funds were their most bullish in 55 week
• Large speculators flipped to net-short exposure to copper futures
• Bulls reduced gross-long exposure to copper futures by -11.4% and increased shorts by 16.7%

Gold futures (GC) - Commitment of traders (COT):

Gold traders are seemingly feeling less bullish than they were compared to a few wees ago, in the face of rising yields and a stronger US dollar. Both large speculators and managed funds has reduced their net-long exposure to gold, by increasing short bets and trimmings longs. It would appear they’re nervous about a second round of inflation, and that now leaves us wondering if gold prices could in fact break below 1900 over the coming week/s.