Big Sentiment Shift Shakes FX Market

11/01/2011 6:00 am EST

Focus: FOREX

The most recent COT data shows a sizable sentiment shift among large speculators like hedge funds, as bullish positions on the US dollar have been lightened in favor of other currencies like the yen and aussie.

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that large futures speculators decreased their bullish positions in favor of the US dollar as bets in favor of the Japanese yen soared. Despite last week’s decline, speculative positions have now totaled a bullish dollar bias for a seventh straight week.

See related: Find Useful Signals in the COT Report

Non-commercial futures traders, usually hedge funds and large speculators, diminished their total US dollar long positions to $8.92 billion on October 25 from a total long position of $14.86 billion on October 18, according to the CFTC COT data and calculations by Reuters, which calculates the dollar positions against the euro (EUR), British pound (GBP), Japanese yen (JPY), Australian dollar (AUD), Canadian dollar (CAD), and the Swiss franc (CHF).

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Euro (EUR)

Currency speculators slightly decreased the short bets for the euro against the US dollar as of October 25 to a total of 76,512 net-short contracts from the previous week’s total of 77,220 net-short contracts reported as of October 18.

The slight change in euro positions shows that positions have been in a close range for about a month, ranging between 73,795 short positions on October 11 and the most recent low of 82,697 short positions on October 4.

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The COT report is published every Friday by the Commodity Futures Trading Commission (CFTC) and shows futures positions as of the previous Tuesday. It can be a useful tool for traders to gauge investor sentiment and to look for potential changes in the direction of a currency or commodity.

Each currency contract is a quote for that currency directly against the US dollar, whereas a net-short amount of contracts means that more speculators are betting that currency to fall against the dollar and net-long positions expect that currency to rise versus the dollar.

The graphs overlay the forex spot closing price of each Tuesday when COT trader positions are reported for each corresponding spot currency pair.

NEXT: Latest Sentiment for British Pound, Japanese Yen, and More

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British Pound (GBP)

British pound sterling positions have increased for three consecutive weeks after their six-week decline, according to the data as of October 25th. Pound positions increased to a total of 50,147 net short positions on October 25th following a total of 53,226 short positions as of October 18th. The three-week improvement has brought net short positions from a low point on October 4th of 68,724 to just over 50,000 net short positions last week.

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Japanese Yen (JPY)

The Japanese yen net-long speculative contracts surged higher after decreasing for two consecutive weeks and falling to the lowest level since July. Yen long positions more than doubled in number to a total of 54,279 net-long contracts reported on October 18 following a total of 26,907 net-long contracts reported on October 18.

The latest data marks the highest level since August 2, when large speculators’ net-long positions equaled 58,833.

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NEXT: Latest Sentiment for Swiss Franc, Canadian Dollar, and More

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Swiss Franc (CHF)

Swiss franc long positions edged a bit higher and stayed over on the short side for a second consecutive week. Speculator positions for the Swiss currency futures edged up to a total of 1,203 net-short contracts following a total of 2,243 net-short contracts as of October 18.

The Swiss currency, a popular safe-haven currency, has seen decreased volatility in forex trading since the Swiss National Bank (SNB) initiated a policy to blunt the strength of the franc and maintain a peg against the euro at the 1.20 level.

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Canadian Dollar (CAD)

Canadian dollar positions increased for the second straight week coming off the lowest bearish level of the year. CAD net contracts slightly rose to a total of 17,923 short contracts as of October 25 following a total of 24,795 short contracts reported on October 18. CAD positions hit the lowest level of the year on October 11 when net-short positions reached 21,913.

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NEXT: Australian Dollar Sentiment and Trading Conclusion

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Australian Dollar (AUD)

The Australian dollar long positions increased for the second consecutive week as of October 25 and reached the highest level in a month. AUD positions rose to a total net amount of 23,071 long contracts following a total of 20,353 net long contracts reported October 18.

The Aussie dollar positions have gained three out of the last four weeks after reaching the lowest point of the year on September 27 at 5,167 net-long contracts.

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Trading Conclusion

In summary, the COT currency data as of October 25, 2011 shows the following Large Speculators net positions versus the US dollar:

  • Euro (EUR): -76,512
  • British pound (GBP): -50,147
  • Japanese yen (JPY): +54,279
  • Swiss franc (CHF): -1,203
  • Canadian dollar (CAD): -17,923
  • Australian dollar (AUD): +23,071

By the Staff at CountingPips.com

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