Look beyond ordinary analysis
The Commitments of Traders Report is issued by CFTC.
It reports all open positions in futures markets of three main groups of traders:
Commercial Traders – Hedgers
Non-Commercial Traders – Money Managers
Non-Reportable – Retail market
The report breaks down each Tuesday’s Open Interest and gives us a powerful view on what exactly the big guys have been doing in the marketplace and what their plans might be.
It is issued every Friday and includes data from Tuesday to Tuesday. The three days prior to the release date are not included.
This is an essential tool for gauging long term sentiment in futures markets.
In this report we cover EURO, GBP, AUD, JPY and we focus on Non-Commercial traders as an indication of profit driven bias.
It was a great week for GBP. British Pound rallied on the better than expected PMI figure. I managed to enter low risk long position ahead of PMI. Captured good chunk of the advance.
USD surprisingly rallied after worse than expected NFP. Market responded to long awaited report with positive sentiment even though the figure printed 30K below expectations.
Next week will be a busy one so buckle up.
BOJ Gov Kuroda Speaks on Monday, UK services PMI is due the same day. Market will be watching for more stimulus from BOJ and better PMI number from UK. These could be market movers.
RBA will release rate statement on Tuesday, ISM Non-Manufacturing PMI from US will be important.
CAD and EUR rate statement will be also eyed by investors.
The data below includes orders placed after Jackson Hole but does not include orders placed after last Friday’s NFP.
Note for the next week: see the change in speculative sentiment after NFP. Market’s reaction was to buy USD on poor NFP, which was unusual
USDJPY: Flat/ Turning Bullish
EURUSD had been moving lower few sessions after the Jackson Hole. The pair finally bottomed and found some buyers just before Friday’s NFP. During the event, EURUSD advanced to 1.1250 before falling back near the day’s open 1.1160
Weirdly, investors interpret poor, lower than expected NFP as a good news and bought USD.
Speculators on the other hand are less net short each week.
This week, after Yellen’s comment they added back 8K new short positions. This is after they covered 13K in the previous week.
On balance they are slightly more bearish this week.
At the same time, they added new 3K longs EURO FX positions. This is 4th consecutive week with speculators adding longs steadily around 2.5K each week.
They were 82K net short this week vs 77K previous week .
It seems like speculative long positions slowly trend towards long Euro but the downside must be assumed as long as they are net short in this market.
Cable at last broke out from the tight range and advanced sharply after an excellent PMI report. Its seems like the confidence in UK economy is slowly coming back. GBPUSD has been trading higher 3rd consecutive week.
This week speculators added 3.7K new longs, the volume not seen in many weeks.
At the same time they added smallest amount of shorts in weeks.
My analysis from the previous weeks still holds firm and it is now confirmed by better dta coming out of UK.
Speculative positions are now extreme.
Speculators are now holding 132K short contracts. The highest number ever.
As the market is expecting another leg down for the British currency, the Open Interest and the largest amount of shorts suggest that the bottom is near despite the expected lower interest rates. The post Brexit sell off might included all bears and there are not many of them left to sell GBP. This could be a catalyst for higher prices.
As of now speculators hold HIGEST NUMBER OF SHORT POSITIONS EVER
There were few instances in the past where speculators reached similar level of bearishness.
In each case, the price rebounded and gave a beginning to new major trend in opposite direction. See the screenshot below.
In each instance speculators held arround 50% of total open interest in positions at one side of the market.
As of this week, speculators hold 132K short positions vs 248K of total open interest. This accounts for almost 53%.The highest ever
As everything suggests more downside, its worth noticing that most of the market is already on the short side and there could be only a small supply of new sellers left. This kind of dynamic causes prices to reverse.
Aussie found some sellers around major resistance at 0.7850 area and declined lower. The selloff was mainly caused by stronger USD and some poor data released last week.
Speculators remain strongly bullish in AUD FX.
There was no much change this week in their positions though.
They reduced both shorts and longs by 388 and 579 respectively.
The net amount will be changed marginally WoW.
Overall, this market remains bullish and any dips should be treated as an opportunity to enter long positions.
This week the market will be watch RBA rate decision and hits for the near future.
USDJPY price action reflected USD strength. The pair closed higher for 2nd consecutive week.
Speculators keep adding longs and reducing shorts.
This week they added 1.1K new longs and reduced shorts by 2.1K
As of now speculators are 63K net long vs 56K last week.
The long positions are historically extreme and this market could be getting ready for a turn to the upside.
Kuroda would have to come up with effective and innovative QE to weaken JPY.
Perhaps he will soon…
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