Commitment Of Traders Report: Yen Bears Get Aggressive, Euro Net Long Rises To 6-Year High

This week’s COT report shows some significant shifts in the major currencies with a similar theme as last week. Non-commercials increased their bearish USD bets by getting long all of the other major currencies with the exception of the Japanese yen.

The Japanese yen saw a notable shift in the last report but speculators stepped on the gas in the week to July 11th by increasing the net short from 75,036 to 112,125 contracts. This marks a roughly 50% week over week increase in the net position and takes it to the largest size seen in over a year.

The shift is attributed mostly to increasing bearish sentiment as the gross short position rose from 118,684 contracts to 152,903. Speculators scaled back on long contracts but the draw wasn’t significant and the gross long remains higher than what was reported in the week to June 27th.

Euro bulls took charge and increased their net long position to 83,788 contracts from 77,464, driving the position to the largest since May 2011. The shift in the last report came from a draw in short contracts and a build in long contracts. This week’s net shift is attributed mostly to a significant build in long contracts.

The euro build comes ahead of the ECB monetary policy meeting which is scheduled to take place on Thursday. Since Draghi’s speech in late June, that hinted policymakers may look to taper, non-commercials have added roughly 40% to their net long position.

After trading at an extreme net short in late May, the Canadian dollar position is on the verge of shifting to a net long. Last week’s report saw the net short decline from 49,495 contracts to 39,382. This week, it declined to 8,604 contracts. The position may have already shifted to a net long as the report does not include the reaction to Wednesday’s BoC meeting.

Despite the signal from BoC’s Wilkins to a more hawkish stance on June 12th, loonie bulls are seen just starting to build a position in the past two reports. This is may explain the loonie strength that followed the Bank meeting in the past week, despite the futures market pricing in the rate hike.

British pound bears cut their bearish bets in the week to July 11th, although a draw in long contracts has offset the net shift. The net short declined from 27,767 to 24,138 contracts. The gross short dropped from 81,792 contracts to 70,752 and is the smallest in the period following the June 2016 EU referendum.

Most of the bullish price action in Sterling materialized after the report cut off date in the past week. The break in GBP/USD to highs not seen since September hints that the net position may shift to a net long in the near future. The last time the pound was held net long was in November 2015.

The antipodean currencies saw an increase in bullish sentiment. For the New Zealand dollar, it was the eighth consecutive week of sentiment improvement, for the Aussie, it was the fourth.

The Australian dollar net long rose to 36,806 contracts from 32,414 with bears reducing their exposure for a second consecutive week. Bulls appeared less confident with a draw in the gross long for the first time in four weeks. A technical break in the Aussie versus the greenback in the late week is likely to have renewed some bullish sentiment.

The size of the Australian dollar net long remains below levels in March and April which opens it open to further gains.

The New Zealand dollar net long rose to 31,905 from 29,133 to surpass the prior high of 30,808 contracts set in April 2013.

Although there was a build in long contracts, the majority of the shift was as a result of a short covering as bears covered for a second consecutive week.

Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.