Authored by Ivan Delgado, Head of Market Research at Global Prime. This report intends to unveil the directional bias the smart money is supporting based on the latest changes in market positioning. If one wishes to gain further insights into how to read the CoT data I publish every week, read the following report (primer).
The most noticeable changes as part of the latest changes in the commitment of traders report can be found in the Euro, the Pound, and the Yen. In terms of the Euro, the poor German PMI reading from last Thursday has caused renewed committed sell-side interest as the volume and open interest readings indicate. On the British Pound, despite the latest slide through an area of support, large specs are just a few contracts away from crossing above the 0 line, as commercials are also about to tu negative. This should translate into a positive event in terms of positioning, something that had not occurred since June 2018. However, the clearest shift in positioning is found in the Yen, where large specs piled into new short positions on an increase of both volumes and open interest, communicating that the JPY bear trend may find further legs down.
Prior to the renewed selling wave that hit the Euro on the back of a disappointing German PMI last Thursday, the correction higher in the exchange rate over the previous 2 weeks saw leveraged accounts barely budge, keeping the net short position just under -100k. Further anchoring the macro bearish view on the rate, such retracement attracted the interest of commercials by increasing the short positions ever so slightly, which is what you’d expect in a bearish trend. In terms of open interest, the changes have been extremely muted even if we can finally observe that the last commanding bearish candle on April 18th does carry an increase in both volumes and open interest, communicating that there is a new committed sell-side campaign underway
Large speculators are about to tu net positive in the Sterling, while the opposite is true for commercials, effectively leading to an inflection point not seen since June 2018. In the last few weeks, it’s been commercials that have been pushing the exchange rate lower by increasing the net short positions, while large speculators are for now caught wrong-sided after the bear breakout. The changes in open interest have been very marginal for weeks now and the same applies to the volume, where the activity has decreased below the 100,000 contracts/day. Overall, this is not a market that has the backup of the large specs for now as the gradual net increase in positions indicates. However, with fast money and commercials pushing the rate down through a key technical level, the cascade of sell-side orders on those caught wrong-sided could continue feeding the bearish momentum.
There has definitely been a sea change in the Japanese Yen market, clearly noticeable via the futures and options markets, where the short-side exposure towards the Yen has increased significantly to nearly -100,000, while commercials saw one of the largest jumps in buying interest in months. What’s most important, the renewed selling pressure on the Yen comes amid a leg of increasing volumes and open interest, which is the perfect scenario for an eventual continuation of the trend.
Despite the modest and extremely lackluster recovery in the Aussie since early March, there has been very little net changes in large speculators. It reflects the dominance by fast money for quick intraday moves that lack enough substance to find directional resolution at a more macro level. The minor upticks in commercials from the last 2 months suggested these account types have been growing more optimistic on joining the bid above the 70c. In terms of vol and open interest, the tendency has been to decrease positions over the last week or so with volume activity weakening too.
USEFUL COT RESOURCES
There are 4 types of reports published by the CFTC. However, there are only two we want to pay attention to, which include 1. The legacy and 2. The traders in financial futures (TIFF), with the proper version including futures and options activity. Find below these resources:
View a table of the latest legacy report:
These reports are broken down by the exchange, with a futures-only report and a combined futures and options report, the latter being the one we want to stick with. It is then unpacked into reportable open interest positions for non-commercial (speculators) and commercial traders (hedgers).
View a table of the latest TIFF report.:
These reports include financial contracts, such as currencies, U.S. Treasury securities, Eurodollars, stocks, VIX and Bloomberg commodity index. These reports have a futures-only report and a combined futures and options report, the latter the one we want to use. The TFF report breaks down the reportable open interest positions into Dealer/Intermediary, Asset Manager/Institutional, Leveraged Funds, and Other Reportables.
Access the historical data:
In this section of the CFTC website, any entity or individual is free to download the historical data accumulated over the years of the different classified CoT reports. This site is very handy in case you want to crunch the numbers and conduct your own backtesting.