The Daily Edge is authored by Ivan Delgado, 10y Forex Trader veteran & Market Insights Commentator at Global Prime. Feel free to follow Ivan on Twitter & Youtube weekly show. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. The purpose of this content is to provide an assessment of the conditions, taking an in-depth look of market dynamics – fundamentals and technicals – determine daily biases and assist one’s trading decisions.
The CoT (Commitment of Traders) report, against conventional belief, does not represent a lagging indicator.
The right interpretation of the data provided, published every Friday at 3:30 p.m. ET, and reflecting the commitments of traders up to the prior Tuesday, offers comprehensive insights to gauge how the smart money is positioned. Large institutions and commercials tend to leave a trail of breadcrumbs along the way, and through the CoT, we can follow what their intentions are, therefore, it should be seen as a valuable resource.
Click here to 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. It is then unpacked into reportable open interest positions for non-commercial (speculators) and commercial traders (hedgers).
Click here to 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 TFF report breaks down the reportable open interest positions into Dealer/Intermediary, Asset Manager/Institutional, Leveraged Funds, and Other Reportables.
Click here to 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.
Click here to access a 2018 comparison table. This document comprises a handy personal notebook, where I annotate the most recent changes in positioning in order to assist the analysis.
In the following article, based on the Commitment of Traders report, I unpack last week’s change in futures and options positioning.The data only provides marginal changes in positioning as many trading desks around the world took the week off. The removal of liquidity was the main theme when analyzing the CoT data, which when combined with the price movements seen, it reveals some valuable snippets of information relevant to the trading of G4 FX currencies.
First and foremost, the CoT suggests a weak recovery underway in the euro vs US dollar, and it also applies to the US dollar vs Japanese yen, both running the risk of finding exhaustion as moves higher failed to gaer any new commitment (via an increase in open interest) by traders. It’s also worth noticing the added pressure by commercial shorts in the Australian dollar despite the shallow bounce. From a macro view, judging by the positions of dealers and asset managers against the US dollar, the market remains long the euro, and short sterling, the aussie, and the yen.
Main Takeaways from theEuro Contract (6E – CME)
Main Takeaways from theSterling Contract (6B – CME)
Main Takeaways from the Japanese YenContract (6J – CME)
Main Takeaways from theAustralian Dollar Contract (6A – CME)
How to Be Positioned Going Forward?
Judging by the break down of the latest changes in market positioning, the risk of renewed US dollar and Japanese yen strength, which implies a retu of risk-off conditions, looks set to be an outcome the market is preparing for. The significant absence of interest to engage in the latest ‘risk-on’-led movements as reflected by the removal of liquidity means that that leg of risk faces the prospects of being faded as exhaustion ensues. The subsequent heavy buying in the US dollar but most notably in the Japanese yen late last week as risk aversion came back, should be perceived as further evidence in line with the latest readings in the CoT report, and argues for the risk of a yen, US dollar trend resumption against the aussie and sterling as the most favourable scenario, less so against the euro, as the macro positioning remains more supportive.