The latest CFTC data on the Commitments of Traders (CoT) shows some important moves in the positioning of speculators.
Australian dollar (FXA)
While the price of iron ore plunged, bullishness on the Australian dollar (FXA) remained surprisingly strong. I am almost equally surprised to see this bullishness now in full scale retreat as iron ore attempts a relief rally off a 7-month low. Over the last two weeks, the net long contracts held by speculators dropped to near zero.
Source: Business Insider
Source: Oanda’s CFTC’s Commitments of Traders
I am still bearish against the Australian dollar and expect a lower currency once the reality of “lower for longer” iron ore prices settles in. While I have a standing short in the form of long AUD/JPY, I have recently cycled in and out of long EUR/AUD given my bullishness on the euro.
Source: FreeStockCharts.com
Euro (FXE)
Speaking of the euro, the switch to bullish sentiment may be in its early stages. Speculators increased net longs from the previous week’s switch from bearish to bullish positioning. Given the weight of bearishness suffered by the euro since 2009 combined with a likely turn in economic prospects and monetary policy, I think a sustained switch is underway that could drive the euro to much higher levels over time. Against the U.S. dollar, the euro has effectively erased its post-election losses. I am still in a buy-the-dip and sell the rally mode on EUR/USD. Playing the current uptrend channel has happened to turn into a major winner.
Source: Oanda’s CFTC’s Commitments of Traders
Source: FreeStockCharts.com
The British pound (FXB)
The British pound has been going strong ever since Prime Minister Theresa May announced a snap election for June with the goal of solidifying her grip on power and gaining more leverage in Brexit negotiations. That major breakout caught me completely flatfooted; I was holding a sizeable position where I TWICE turned down small profits in exchange for the expectation of a much bigger payoff on a short GBP/USD position (yet another lesson learned!). I thought the strength would be fleeting. Instead, the pound has steadily drifted higher. The torture of dripping water has worn down the patience of speculators net short against the British pound. The last two weeks have delivered a full-scale retreat by pound bears. I am still holding a small amount of shares in CurrencyShares British Pound Ster ETF (FXB). I am currently short the pound in forex with small positions I intend to hold through the June election where I expect at minimum a sell-the-news event before the pound steadies itself for the next run-up.
Source: Oanda’s CFTC’s Commitments of Traders
Source: FreeStockCharts.com
Note well that May’s election announcement marked the most recent LOW for EUR/GBP, the currency pair I consider the true value test for the British pound given the context of Brexit.
The Canadian dollar (FXC)
Oil has rallied sharply since the lows of early May. That low also marked the high for USD/CAD. The subsequent sell-off surpassed my expectations, so I found myself without a short position as USD/CAD broke through 50DMA support. At the time of typing I got back into a short position ahead of the upcoming OPEC meeting.
Source: Oanda’s CFTC’s Commitments of Traders
Source: FreeStockCharts.com
Be careful out there!
Full disclosure: net short the U.S. dollar, long FXB, short the British pound, short AUD/JPY, short USD/CAD
AUD is at an interesting point. I find it hard to have any clear bias currently. There are 2 opposing factors and it is not clear which will emerge first.
There is the ever present possibility of the housing bubble imploding. When it does, it will cause the AU economy to crater. However, as the housing bull market has been going for so long ( over 25 years since the last recession and housing bust and the second longest expansion in any developed country post ww2), it will be utterly surprising when it does happen because everyone has given up on waiting for it go happen. This is why I like to watch Sydney auction clearance rates.
However, if the above does not occur, then the AU unrmployment rate will continue to decline and the next move in rates will be up and this will put a rocket under AU. The consensus is stil that the next move in rates will be down so when or if this changes this would have s big effect.
I think with the USD in general, the dollar rally based on US rate differential and the US being earlier in the cycle is behind us. At some stage the rest of the world start tightening too. It is about time for a dollar correction. To get the next phase of dollar strength, we probably need to see significant risk aversion, which is nowhere in sight.
Yeah I have all but given up fading AUD. Normally I would be all over shorting the pop on AUD/USD but USD bearishness and seeing the Aussie so stubborn in general keep me at bay. I can’t help but wondering whether “they” know something that I simply don’t appreciate!
Yes, hard not to wonder how many players know advance knowledge of news and stats releases with the price action beforehand. But who knows, not me anyways.
With the OPEC and BOC whipsaw out of the way, I got back in short CAD position and still waiting out for the long spec position to get wrung out. Hard to have a large position in CAD at these levels though. Pretty boring, non trending market at the moment on forex, with the range and occasional spec over positioning plays.
That should be long CAD position, not short