Traders ditched commodity FX, metals for yen, franc: COT report

Market positioning from the COT report - as of Tuesday, 23 July 2024:

• Net-long exposure to EUR/USD futures increased for a third month to a 6-week high among large speculators
• Net-long exposure to GBP/USD futures rose to a record high for a second week running
• They also reduced net-short exposure to Japanese yen futures for a third week, effectively halving their short exposure over the past four weeks
• Net-short exposure to Swiss franc futures fell from a 17-year high, at the fastest weekly pace in 31
• Large speculators reached another record level of net-long exposure for a second week
• Traders had a more bearish view on commodity currencies AUD/USD, NZD/USD and CAD/USD
• Large speculators reverted to net-short AUD/USD futures after a 2-week spell being net long (asset managers remained net short 76^th week)
• Net-long exposure to NZD/USD futures fell for a third week, with large specs now just net-long by 4.5k contracts
• They trimmed exposure to CAD futures by reducing longs and shorts by around -7.5%
• Large speculators reduced net-long exposure to gold, silver and copper
• Asset managers took a more bearish view on the Nasdaq 100 by increasing gross-shorts by 13.2% (3.2k contracts) and trimming longs by -8% (-9k contracts)
• Asset managers also decreased gross-short exposure to the 2 and 10-year bond notes (less bullish for yields)

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

Yen bears appear to have finally got the message from the MOF (Ministry of Finance) or least understood that the path of least resistance for Japan’s currency is no longer lower. The combination of a dovish Fed, increased odds of a BOJ hike and risk-off tone have helped strengthen the yen. And that saw asset managers heavily reduce their net-long exposure for a third week from their record high, and large specs also reduce for a third week but from a 17-year high. Both sets of traders reduced gross shorts in exchange for gross longs, and given this has happened after a sustained period of yen weakness it suggests further upside potential for the yen (USD/JPY bearish).

FX major commodity FX (AUD, NZD, CAD) positioning – COT report

A risk-off tone stemming from a dovish Fed, weak China data and inadequate stimulus took its toll on commodity FX last week. AUD/USD fell for nine consecutive days during its worst since the pandemic and worst week’s performance of the year. Traders had already flipped to net-short exposure to AUD/USD futures by last Tuesday, yet the selloff continued through to Friday – so positioning is likely more bearish than the data shows. Asset managers were right to remain net short, and there are plenty of AUD/USD bears sat on the sidelines contemplating reinitiating shorts.

USD/CAD rose for eight days to a 3-month high. Although the Canadian dollar may need to fall a lot further to justify the record level of net-short exposure among large speculators and managed funds. Yet with the Fed on track to narrow their -100bp differential with the BOC over the next six months (according to market pricing), one has to wonder how much further CAD can fall against the USD.

Large speculators and now net-long NZD/USD by just 4.5k contracts, and it seems just a matter of time before they join m

Gold, silver, copper futures positioning – COT report:

Perhaps not too surprisingly we also saw traders take a less favourable view on metals, with net-long exposure to gold, silver and copper also being trimmed. Large speculators and managed funds reduced net-long exposure by -33k contracts from record highs, at their fastest weekly pace in five months. An abundance of gold bulls and therefore likely support for gold remain in place, but it is a change in sentiment at least over the near term. I continue to suspect that gold could act as more of a safe-haven once this initial fluish of weaker bullish hands has been flushed out.

Net-long exposure to silver futures fell to an 18-week and 10-week low among managed funds and large speculators. Managed funds have reduced net-long exposure to copper futures by around -75%.

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

We know that Wall Street indices did not have a great run last week, and the positioning data backs that up. Asset managers reduced net-long exposure to Nasdaq futures at their fastest weekly pace in 38 weeks, although they reduced both longs and shorts as they decided to reduce overall exposure instead of getting all out bearish. The Nasdaq 100 was lower for a third week, its first such run since April. Although that turned out to market low.

I am not yet convinced Wall Street indices will simply accelerate to new highs from here, but a retracement higher against recent bearish moves seems feasible. Note that net-long exposure to S&P 500 and Dow Jones futures was only marginally lower, to underscore the selloff was mainly driven by tech stocks.

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