Speculators have remained overwhelming bullish on the Australian dollar (FXA) for almost two years. Last week, they made a quick switch to net bearish positioning. Net contracts went from 40,720 net long to 12,660 net short. Open interest fell from 157,029 to 105,270, so it appears that bullish speculators made a hasty retreat rather than bearish speculators making a rapid advance.
Source: Oanda’s Commitments of Traders
Perhaps a bunch of bullish speculators decided to close out positions ahead of year-end and that move ends the story. If not, this bearish switch is interesting coming in the wake of a strong Australian employment report that had me wondering whether my bearish assessment on the Australian dollar could hold. I am now incrementally more confident on that bearish assessment.
From a technical perspective, the Australian dollar continues to make bullish moves. I even decided to close out my AUD/JPY short as a precaution. From a bearish perspective, there is no need to renew the position until/unless AUD/JPY tests resistance at the right shoulder of the hold head and shoulders (H&S) pattern and/or breaks down again below its 50 and 200-day moving averages (DMAs).
The Australian dollar is even making more progress against the U.S. dollar despite the recent rate hike by the U.S. Federal Reserve. AUD/USD is pushing against resistance at its 200DMA.
So going into 2018, I am likely to be sitting in a holding pattern waiting for a clearer bearish signal from the Australian dollar.
Be careful out there!
Full disclosure: no positions