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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).
EUR CONTRACT: RANGE-BOUND CONDITIONS SET TO EXTEND
In a week where the Euro found substantial buying interest off the lows, the COT data reveals open interest on the rise to the tune of over 10k contracts. However, it failed to be matched by volume pressure, measured via OBV (on balance volume). We saw a removal of liquidity by specs accounts, while commercial accounts were more decisive to engage in purchases off the lows than to join the offers topside, as a result, total commercials rose to 33.6k vs 27.8k. It’s not usually the case that we see heavier buying pressure from longs in a week when the price also ended at higher valuations. It tells me the 1.1250–1.13 is a stronghold where commercials see value buying from in anticipation of potentially higher levels in weeks/months ahead. Dealer longs increased by over 5k contracts, a testament of the supply dynamics in spot and hence the need by net-hedge type of accounts (dealers) to cover via longs. It’s also noteworthy the increased interest to be a seller on strength by asset managers, with a clear bearish shift taking place after an increase in short exposure by over 7k contracts while asset managers long reduced their bets by over 3k. Overall, the reading suggests a market set to extend the range into the year-end as the involvement of the various actors stand.
GBP CONTRACT: CONFINED RANGE AHEAD OF VOL KICKING IN
In a week characterized by the range-bound conditions in the Sterling market, open interest increased by over 13k contracts, while volume was largely balanced as depicted by the OBV. Large specs shorts were the side with the most conviction to add new business, while commercial longs were busy buying on weakness, as seen by the data below. Total dealers positioning showed a bearish shift following an increase in longs by over 5k contracts, which as a reminder, it’s an action to net hedge an increase in supply dynamics. Asset managers, in tu, were slightly more bullish the Sterling, by a margin of about 1.7k contracts. Overall, the changes in CFTC were far from revealing ahead of the UK Brexit vote through parliament.
JPY CONTRACT: A RALLY WITH BEARISH CONNOTATIONS
In a week in which the Yen rose significantly, the changes in COT were moderate. Open interest was reduced from 259.8k to 257k, while the overall volume was slightly more supportive of the bullish side. Specs shorts were increased by over 5k contracts despite the rise in the Yen, which combined with the reduction in open interest, reinforces the bearish connotations of the report. Dealer long were paired by 6k contracts on the decreasing need to hedge the reduction in supply dynamics for the yen amid increased risk aversion globally. The rise of the Yen also had an absence of asset managers joining the bid, as the overall positioning was reduced by about 3k.
AUD CONTRACT: DEALERS & ASSET MANAGERS TURN LESS BEARISH
The latest rise in the Aussie from 72 up to 74 cents carried a significantly higher open interest (largest increase since sept), even if volume imbalances were not noted in the 5 days of COT data, judging by OBV measures. Large specs added to their exposure by over 4.5k contracts, even as spec shorts remain undeterred not bailing out of their shorts at all (kept at 67k). As one would expect, there was plenty of interest to join the offer by commercial accounts as the Aussie kept breaking some important macro levels. Unlike large specs, leveraged funds added short aggressively. Meanwhile, the demand dynamics in the Aussie jumped considerably judging by the increase of dealer longs from 15k to 25k. Remember, when dealers increase their long-side commitment, it means that there is significantly higher interest by institutions seeking buy-side AUD denominated products, as a result, dealers taking the other side of the trade must hedge their positions by selling the underlying asset (AUD). Another major development was the major decrease in asset manager shorts by 6.5k contracts.
📌 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.
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 my weekly analysis.
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