US dollar bulls strengthened their grip on futures markets last week, pushing net-long exposure to its highest level in 16 months. At the same time, traders continued to build record short exposure against the Japanese yen, while sentiment towards the euro and commodity-linked currencies deteriorated. This week's COT report reveals a market increasingly positioned for USD strength, although signs of a potential shift in the macro backdrop could challenge that view.
View related analysis:
- Nasdaq 100 Leads Wall Street Rebound as Middle East Peace Boosts Risk
- Australian Dollar Outlook: AUD/USD Finds Stability Ahead of RBA, FOMC
- Japanese Yen Outlook: Middle East Peace Hopes Sink USD/JPY, Lift AUD/JPY
- Short Yen Bets Hit Record High, AUD Nears Net-Short Flip | COT Report
US Dollar Bulls Build Exposure as Yen Bears Reach Extremes
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: Net-long exposure to the USD via futures rose by $11.4 billion last week to a 16-month high of $27 billion.
- EUR/USD: Large speculators increased net-short exposure to euro futures by 35,000 contracts, marking the fastest weekly increase in bearish bets in three months.
- GBP/USD: Net-short exposure to British pound futures increased by 21,000 contracts across both sets of traders.
- USD/JPY: Bears continued to pile into Japanese yen short bets, with gross-long exposure reaching a record high among large speculators and managed funds.
- USD/CHF: Traders increased net-short exposure to Swiss franc futures by a combined 7,700 contracts.
- USD/CAD: Net-short exposure to Canadian dollar futures rose by a combined 50,500 contracts.
- AUD/USD: Asset managers flipped to net-short exposure, while large speculators were their least bullish on the Australian dollar since January.
- NZD/USD: Short bets against the New Zealand dollar rose by a combined 12,200 contracts.
Asset Manager Positioning | COT Report
Source: CFTC (COT), LSEG
FX Futures Positioning | COT Report (IMM Data)
US Dollar Index (DXY) Futures Positioning | COT Report
Bulls continued to pile into long US dollar bets last week, pushing net-long exposure up by $11.4 billion to a 16-month high of $27 billion. This is not especially high by historical standards, given the record peak of $51.4 billion reached in 2014. However, it is elevated by recent standards, with net-long exposure spending little time above $30 billion since 2019.
While asset managers increased their net-long US dollar exposure to 16,600 contracts, the prospect of peace in the Middle East could prove a showstopper for the USD rally.
If the Strait of Hormuz remains open under the proposed agreement between the US and Iran, the Fed-hike narrative would lose a key supporting pillar. That could allow the US dollar to top out and risk assets to rally. With the US Dollar Index still holding beneath its March high and potentially positive news emerging from the Middle East, it is possible that we are at, or close to, the end of the current USD rally.
Source: CFTC (COT), ICE, LSEG
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USD/JPY Futures Positioning | COT Report
Bears continued to defy Japan’s Ministry of Finance (MOF), with gross-short exposure among large speculators and managed funds rising to a record high. Long positions also continued to increase, although not at the same pace as shorts. That has pushed net-short exposure among large speculators to a near two-year high of 14,600 contracts, while asset managers hold net-short exposure of 78,100 contracts.
Whether bears can maintain such extreme levels of bearish exposure hinges on whether the Bank of Japan delivers a hawkish rate hike or the MOF intervenes to support the yen. Either scenario would be bullish for the Japanese currency, potentially forcing bears to cover short positions and weighing on USD/JPY. With the prospects of peace in the Middle East now appearing more likely, the odds of intervention may also be improving.
Source: CFTC (COT), CME, LSEG
EUR/USD Futures Positioning | COT Report
Large speculators came close to flipping to net-short euro exposure last week, with net-long positioning reduced to just 13,900 contracts. The shift was driven by a combination of rising short positions and falling longs. Gross shorts increased by 19,100 contracts (10.2%), marking the fastest weekly increase in 11 weeks, while gross longs fell by 15,900 contracts.
The positioning data paints an increasingly bearish picture for the euro. However, any renewed weakness in the US dollar could help limit the downside potential for EUR/USD bears.
Source: CFTC (COT), CME, LSEG
Commodity FX Futures Positioning (AUD, CAD, NZD) | COT Report
Positioning across the commodity-linked currencies has generally leaned bearish in recent weeks, although the degree of pessimism varies across the Australian, New Zealand and Canadian dollars.
AUD/USD Futures Positioning | COT Report
Asset managers flipped to net-short exposure, and large speculators are not far behind. A culling of gross longs over the past three weeks has been the primary driver behind the pullback in Australian dollar sentiment, while short positions have also begun to increase. However, with the RBA likely to deliver a hawkish hold and the Australian dollar finding support from a weaker US dollar, bears may remain sidelined in the near term.
NZD/USD Futures Positioning | COT Report
There were no major changes in positioning last week, although both groups of traders have maintained net-short exposure to New Zealand dollar futures for the past year.
USD/CAD Futures Positioning | COT Report
Both large speculators and asset managers continued to increase their net-short exposure to the Canadian dollar. While a reduction in gross longs has been a key driver, note the rise in gross shorts last week, which suggests the recent easing of bearish positioning may have come to an end.
Source: CFTC (COT), CME, LSEG
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-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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