EUR/USD, Gold, Crude Oil, 2-year note analysis: COT report

Market positioning from the COT report - as of Tuesday April 16, 2024:

• Net-long exposure to EUR/USD futures fell to just 12.2k contracts, its least bullish level since September 2022
• GBP/USD futures net-long exposure continued to fall and now sits at just 8.6k contracts among large speculators
• Yen traders continued to pile into shorts with JPY/USD futures net-short exposure rising to a fresh 17-year high
• Net-short exposure to AUD/USD futures declined for a fourth week among large speculators
• Large speculators pushed net-short exposure to Swiss franc futures to the most bearish level since May 2019
• Net-short exposure to CAD futures rose to a near 7-year high
• Managed funds trimmed net-long exposure to gold futures for a second week
• Futures traders continued to increase gross-short exposure to WTI crude oil
• Asset managers piled into long bond positions to the 2-year note at their fastest weekly pace on record
• Asset managers trimmed net-long exposure to US indices and the Dow Jones futures contract was on the cusp of flipping to net-short exposure
• The 10-year bond note is on the cusp of flipping to net-long exposure among large speculators

US dollar positioning (IMM data) – COT report:

Net-long exposure to the US dollar against futures markets on the CME exchange rose got a fifth week, up US $7.7 billion for the week. The realisation that the Fed are in no position to cut took its time to filter through to Fed fund futures, but we can see here that futures traders got the memo over a month ago with increasingly bullish bets.

Net-long exposure rose to its most bullish level since June 2019 against all futures and G10 currencies.

It remains debatable as to whether we see a sentiment extreme here; positioning may be at a multi-year high but we have seen it rise ~50% more from current levels in the last decade, and the US dollar index remains beneath its 2023 high. On that note, the correlation between IMM USD positioning and the US dollar index has not always been perfect, with a clear divergence in H2 2022.

2-year bond note positioning – COT report:

Asset managers did not hang about when they piled into the 2-year note, as they increased their gross-long exposure at the fastest weekly pace on record according to data via Refinitiv. This suggests the underlying bond price is assumed to move lower, sending yields higher in due course. Net-long exposure tends to track the trend of yields fairly well over time, and this could indicate a higher US dollar if correct this time around.

EUR/USD (Euro dollar futures) positioning – COT report:

Looking at the rate which traders are piling into the US dollar alongside the likelihood of the ECB cutting in June, I’m surprised to see large speculators aren’t net short EUR/USD already. At just 12.2k contract net-long, it is the least bullish level since September 2022. Gross shorts have been trending higher for large specs and asset managers since Q4, and whist asset managers remain heavily net long they are trimming their long exposure. It just seems a matter of time before EURUSD flips to net short.

CAD/USD (Canadian dollar futures) positioning – COT report:

Traders have been piling into short bets against the Canadian dollar on expectations for the central bank to begin cutting rates as soon as June. There is a reasonable chance they will cut rates, but will it be enough to justify the current surge into CAD shorts? Unless the BOC signals further cuts and inflation continues to soften, then CAD may be fast approaching a sentiment extreme.

• Net-short exposure is at its most bearish level in nearly seven years among large speculators
• Gross shorts are also at a near 7-year high
• Yet CAD/USD is holding above a key support level (USD/CAD is approaching resistance) with the prospects of a sentiment extreme

WTI crude oil (CL) positioning – COT report:

Crude oil prices declined for a second week despite the spike higher on Friday around Middle East headlines. The weekly chart has provided a 3-week bearish reversal called an evening star formation, to suggest a swing high formed two weeks ago on the weekly chart.

• Asset managers increased short exposure by 32.7k contracts (66.5%) and trimmed shorts by -3.6k (-1.3%)
• Net-long exposure fell to a 5-week low among this set of traders
• Large speculators increased short exposure to crude oil by 14.9k contract (13.9%)

Gold futures (GC) positioning – COT report:

Picking a top on gold has proved to be a bad move for bears, even if bullish momentum is waning. But there is evidence slowly building on the futures market that the lust for gold is receding – even if only by subsets of futures traders. I’m not making a bearish case as such, but caution may be warranted at these highs, or at least expectations of exponential gains from here could be reconsidered.

• Net-long exposure among managed funds trimmed for a second week
• Funds increased gross short exposure for a second week and trimmed longs last week
• Large speculators also trimmed net-long exposure slightly last week

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