AUD/USD net-short exposure reached a record high last week: COT report

Market positioning from the COT report - as of Tuesday March 19, 2024:

• Bullish bets on the US dollar against G10 currencies rose $7.9 billion last week (fastest rise in three years)
• Net-short exposure to AUD/USD futures rose to a record high among large speculators last week
• Large speculators flipped to net-short exposure to New Zealand dollar futures
• Net-short exposure to Swiss franc futures rose to its most bearish level since November 2021
• Net-short exposure to the 10-year note fell to l its least bearish level in 14 weeks
• Managed funds increased net-long exposure to gold futures for a fifth week, but by a mere 1.8k contracts (gross shorts were also trimmed for a fifth week)
• Net-long exposure to silver futures rose to its most bullish level since May 2021 among large speculators
• A surge of bullish bets on copper prices saw net-long exposure rise to a 13-month high
• Traders were their least bullish on EUR/USD since October 2022

US dollar positioning (IMM data) – COT report:

Net-long exposure to the US dollar against G10 currencies rose to an 18-week high, with the $7.9 billion increase being its fastest weekly rise in three years.  Yet bullish bets do not appear to be at a sentiment extreme, which could provide further upside potential over the coming weeks if US data forces the Fed to delay any rate cuts.

AUD/USD (Australian dollar futures) positioning – COT report:

Last week the RBA held their cash rate at 4.35% and removed their slight hawkish bias from their statement. By Tuesday’s close, AUD/USD traded at a 9-day low and large speculators pushed net-short exposure to a record high. Yet a dovish FOMC meeting and strong employment report for Australia sparked a bout of short covering and allowed AUD/USD to briefly trade above the 200-day average. Although a stronger US dollar has now driven AUD/USD lower once more, and we’re eyeing its potential for a break below 65c to confirm a head and shoulders top pattern.

However, with net-short exposure at a record high, there are risks of a sentiment extreme that could limit downside potential for AUD/USD. And when you consider its ability to remain above 63c over the past year, then it’ possible AUD/USD could remain above this level unless the weekly truly fall off the global or Australian economy.

GBP/USD (British pound futures) positioning – COT report:

In recent weeks I warned of the potential for a sentiment extreme on GBP/USD, and it appears to be taking place. Large speculators decreased gross shorts by 60.7k contracts (-16.8%), which was its fastest pace in 34 weeks. This has dragged net-ling exposure down from its 17-year high, and there could be further downside potential with the BOE getting vocal about rate cuts and the increased likelihood that the Fed won’t cut rates soon.

JPY/USD (Japanese yen futures) positioning – COT report:

Large speculators and asset managers increased net-short exposure to Japanese yen futures last week. We’ll continue to keep an eye on a potential inflection point, given net-short exposure is fast approaching levels historically associated with a sentiment extreme. Also take note that MOF officials are also becoming vocal about the exchange rate again, so I suspect USD/JPY could provide a deeper pullback below 152 over the near term.

WTI crude oil (CL) positioning – COT report:

Net-long exposure to WTI crude oil futures is on the rise among large speculators and managed funds. And in both cases, gross longs are being increased whilst shorts are being trimmed, which is the ideal scenario for a healthy bullish move – and without any of the metrics being near a sentiment extreme. The bias on WTI crude oil remains bullish and for a move to $84 whilst prices remain above $79.

Nasdaq 100, Dow Jones, S&P 500 futures (NQ) positioning – COT report:

Asset managers continue to favour the S&P 500 over the Dow Jones and Nasdaq 100, looking at their market positioning. Net-long exposure ticked higher last week, although it raises the question as to how much further upside there could be, given net-long exposure to the S&P 500 futures contract is fast approaching the cycle high see in February 2020.

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