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 by leveraged, non-leveraged, commercials, small and large funds, asset managers, and dealers (unhedged traders). If one wishes to gain further insights into how to read the CoT data I publish every week, read the following report (primer).
In the following article, based on the Commitments of Traders report, I unpack last week’s change in futures and options positioning. The data reflects the smart-money is participating in the EUR/USD downtrend with a firm degree of conviction. It suggests that setbacks should be seen as selling opportunities. Meanwhile, the sharp slide in the Sterling is counter-intuitive to the decreasing short exposure by large specs accounts. On the flip side, there is little support been provided by commercials, which are selling by the same magnitude as amounts bought despite the recent depreciation in the British currency. With regards to the Yen, I remain on a wait and see mode for new data inputs as the latest numbers are inconclusive. Lastly, the move lower in the Aussie lacks the interest by the large specs, which may see the risk offollow-through challenged. On the flip side, commercials are tuing increasingly bearish, which should keep the underlying trend outright bearish as the price potentially recovers some ground.
Main Takeaways from the Euro Contract (6E – CME)
- Classic smart-money acceleration as open interest increases by over 30k in a push characterized by a substantial increase in EUR shorts by large specs (new year low). An analogous behavior by leverage funds, engaging in new short-side business.
- Commercials sold EUR almost by the same magnitude as commercials that bought even as the price slid by around 175p, which should have seen commercial longs activity dominate. It suggests commercials rushing to hedge exposure in potential anticipation of further drops in the price of the pair.
- Typical activity by dealers, increasing long exposure on the way down as the demand for short EUR-denominated products continues on the rise. Conducive of a short trend.
- Asset manager accounts are piling into shorts more aggressively, increasing their exposure by over 6k contracts.
Main Takeaways from the Sterling Contract (6B – CME)
- The sharp fall carries, surprisingly, no new interest by the large specs community. Neither large specs nor leverage funds increased its overall short exposure.
- The increase in open interest from 268k to 280k was mainly led by a renewed commitment to playing short via asset managers (-38k vs -35.3k).
- Commercials appear to be betting for lower prices as the total positioning was unchanged in spite of the down-week. This patte is not common unless commercials are expecting lower valuation in weeks/months to come.
- Dealers continue to be overly committed to play longs in order to hedge the increasing supply imbalances.
Main Takeaways from the Japanese Yen Contract (6J – CME)
- Marginal changes in open interest from 235.3k to 232.3k, with the overly short yen exposure still dominant even if the positioning was pared slightly.
- In the last 5 days of available data, the price was confined in a range, hence providing little new clues to take away.
Main Takeaways from the Australian Dollar Contract (6A – CME)
- The latest sell-off carried no new interest by large specs, with only a diminutive 3k increase in open interest. The exact same behavior could be seen by the lev funds community.
- Commercials are definitely getting more bearish as the last phase down saw an increase in the number of shorts. This is a patte that wouldn’t typically occur unless there is an expectation for lower levels by those with direct exposure.
- Dealers remain outright long, which is a clear communication that the excess of supply continues to be abundant hence the need to buy the AUD to maintain a net hedging exposure.
- The asset managers’ camp saw almost no alteration in their positioning, therefore no clues to extract here this time.