FX Futures Positioning: Dollar Rebound Stalls as Yen Bears Return | COT Report

Dollar longs continued to rise while traders aggressively rebuilt bearish yen exposure as confidence in a smooth BOJ tightening cycle faded.

COT report shows rising US dollar longs, surging yen shorts, softer AUD/USD sentiment and fading Bank of Canada hike expectations.

Currency futures traders continued to favour the US dollar last week, although bullish momentum appears less convincing after the dollar’s rebound stalled beneath key resistance levels. Meanwhile, futures positioning data showed traders aggressively rebuilding bearish exposure to the Japanese yen as confidence in a smooth BOJ tightening cycle faded.

Elsewhere, bullish AUD/USD positioning pulled back from record highs following weak Australian employment data and collapsing RBA hike expectations, while traders also turned more cautious towards the Canadian dollar amid softer domestic data and reduced BOC hike concerns. Here’s what the latest COT report reveals across major FX futures markets.

View related analysis:

Dollar Longs Rise While Yen Bears Return in FX Futures Markets

Large Speculator Positioning from the COT report

Source: CFTC (COT), LSEG

For traders wanting a deeper understanding of futures positioning, I’ve also published a guide on how to read and interpret weekly COT data in forex markets.

US Dollar: Currency futures traders increased their effective net-long US dollar exposure by $5.5 billion last week, to $9.1 billion
EUR/USD: Net-long exposure among asset managers fell -19.5k contracts
GBP/USD: Asset managers increased net-short exposure to a 10-week high
USD/JPY: Net-short exposure to Japanese yen futures reached an 18-month high
USD/CHF: Large speculators increased net-short exposure to a 10-week high
USD/CAD: Large specs and asset managers reduced longs and increased shorts for a second week
AUD/USD: Net-long exposure among asset managers declined -6.9k from a record high

Asset Manager Positioning | COT Report

Source: CFTC (COT), LSEG

FX Futures Positioning | COT Report (IMM Data)

US Dollar Index (DXY) Futures Positioning | COT Report

The dollar’s rebound effectively stalled last week, printing a small-range doji. Bullish range expansion the prior week had me on guard for a move back towards 100, but headlines surrounding a potential US-Iran deal suggest traders may need to prepare for a deeper pullback.

That said, we have seen plenty of similar headlines emerge over the past three months without leading anywhere meaningful. So unless an actual deal materialises, downside for the US dollar could remain limited and a move back towards 100 may still be on the cards.

Futures traders increased their net-long exposure to US dollar futures by $5.5 billion last week to $9.9 billion.
Asset managers increased their net-long exposure to the US dollar index to a 15-month high of 15.6k contracts.
Large speculators, however, flipped to a small net-short exposure of -479 contracts.

Source: CFTC (COT), ICE, LSEG

USD/JPY Futures Positioning | COT Report

My case for a rise in yen longs has been placed on ice, given expectations for the BOJ tightening cycle are now viewed as messy rather than linear. Japan’s PM spooked bond markets with the prospect of fresh debt issuance tied to additional fiscal spending, which in turn made the BOJ’s path towards further tightening appear less certain.

Instead of higher yields supporting the yen through policy normalisation, markets began worrying that fiscal pressures and bond market instability could force the BOJ to remain cautious. That helped drive futures traders back into yen shorts.

Asset managers increased their gross-short exposure by 21.5k contracts (24.8%) last week, taking total shorts to a 22-month high of 108.4k contracts.

Large speculators increased their gross-long yen futures exposure by 25.3k contracts (14.4%), which combined saw net-short exposure across both groups rise by 40.7k contracts.

Ultimately, the uptrend in gross shorts against the yen remains strong, although positioning may not yet be at a sentiment extreme.

Source: CFTC (COT), CME, LSEG

USD/CAD Futures Positioning | COT Report

Weak employment data has been enough to offset concerns surrounding higher oil prices within Canada’s economy, resulting in reduced expectations for further BOC hikes. With hikes effectively off the table — yet no immediate threat of a rate cut either — the Canadian dollar has weakened as market positioning reflects the repricing of rate expectations.

Both large speculators and asset managers reduced longs and increased shorts for a second consecutive week.
Neither group shows evidence of a sentiment extreme, with speculators increasing net-short exposure to a four-week high of 31.2k contracts, while asset managers reduced net-long exposure to 10.5k contracts.
Hopes of a US-Iran deal could see USD/CAD pull back over the near term.

Source: CFTC (COT), CME, LSEG

AUD/USD Futures Positioning | COT Report

Asset managers reduced their net-long exposure to AUS/USD futures for a second consecutive week, pulling bullish positioning further away from its recent record high. Given the shift lower in RBA hike expectations following weak employment data, there is a fair chance additional longs were unwound during the second half of the week as traders reassessed the outlook for Australian yields. Gross longs declined while shorts edged higher, pointing to a deterioration in bullish conviction rather than outright panic.

Large speculators meanwhile continued to hold near 13-year highs in net-long exposure, although positioning among asset managers may provide the cleaner read on broader AUD/USD sentiment.

Source: CFTC (COT), CME, LSEG

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-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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