Speculators Show A Shift In Dollar Sentiment

There were some notable positioning shifts in the latest COT positioning report that was released on Friday and reflects data up to Tuesday. Non-commercials cut back on bullish bets on several currencies in the futures market suggesting an improvement of sentiment towards the greenback.

The only currency that had a notable bullish shift was the Japanese yen. Non-commercials cut back for a fourth consecutive week with a decline in the net short to 77,492 contracts from 95,813. Despite a significant decline in the net short from a three and a half year high in mid-July, it remains above levels seen in the first half of the year which suggests the position size remains extreme. A bulk of the position shift was on the back of a short covering.

The largest shift was seen in euro positioning as the net long dropped from 93,665 contracts to 79,267. Last week, the position rose to a fresh six-year high. This week it has fallen to a six-week low. Nevertheless, the position remains at an extreme, putting the euro at risk of further long covering.

A large net short yen position and net long euro position as of late hinted that the markets may have been positioned long EUR/JPY. There was a recent technical break in the currency pair and this week’s report confirms that there was likely a large number of market participants positioned in the pair that have now started to exit. Technical developments in EUR/JPY will be important for the euro crosses and yen pairs in this context as both currencies are at risk of a liquidation.

Bullish sentiment towards the Canadian currency rose at an accelerated pace last week but bulls have cut back a significant portion of last week’s bullish bets. The net long declined from 62,821 contracts to 51,349, attributed to a long covering. Despite the draw, the position size remains the second-largest seen this year and has held near levels not seen since early 2013.

The British pound net short rose to the highest since late June with an increase to 31,860 contracts from a prior 26,160. Speculators added to both long and short contracts and despite a net build to the short side, the gross long has risen to a size that can be considered extreme.

Between the antipodean currencies, the Australian dollar net long was little changed while there was a sharp decline in the New Zealand dollar net long. It dropped from 33,485 contracts to 24,839 contracts, mostly on a decline in gross long contracts. The position size has fallen to a two-month low.

Australian dollar sentiment was little changed with a rise in the net long from 58,010 to 59,612. There was a sharp rise in the currency following the report cut off date which suggests the net long has risen from the levels in the report.

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