EUR/USD, AUD/USD traders flipped to net-long exposure: COT report

Market positioning from the COT report - as of Tuesday, July 9 2024:

• Large speculators flipped to net-long exposure to AUD/USD and EUR/USD futures
• They trimmed exposure to CAD futures by reducing longs and shorts by around -7.5%
• Futures traders reduced net-long exposure to USD futures by -$4.9 billion
• Net-long exposure to GBP/USD futures rose to a 17-year high
• GBP/USD futures saw the largest weekly increaser to net-long exposure of 26.8% (+28.5k contracts)
• Futures traders got behind metals by increased net-long exposure to gold, silver and copper and reducing net-short exposure to palladium for a third week

US dollar positioning (IMM data) – COT report:

The tide has most certainly been turning against USD bulls, with weak US economic data vindicating dovish market pricing despite the Fed pushing back against a September cut. The US dollar index was lower for a second week and down around 2% from the June high, but there could be further losses ahead if data continues to sour.

According to International Money Markets (IMM), CME futures traders remained net-long USD futures in aggregate by around $19.7 billion. Most of which is against G10 currencies with a net-long exposure of $18.7 billion. And this data does not take into account the soft CPI report and dovish comments from Jerome Powell’s testimony to US congress. Which means in all likelihood, net-long exposure is likely to be much lower given the US dollar index was down 1% on Thursday and Friday, after the data was compiled.

EUR/USD (Euro dollar futures) positioning – COT report:

You may need to squint to and zoom in to see it, but large speculators reverted to net-long exposure to EUR/USD last week after just 2-weeks of net-short exposure. A 3.6k contracts net long it is hardly setting records, but with the prospects of a weaker US dollar and low probability of the ECB committing to further cuts at this week’s meeting, the path of least resistance seems more likely to be higher than lower.

Asset managers remain defiantly net-long EUR/USD futures, which have the potential to head for 1.10 this week.

GBP/USD (British pound futures) positioning – COT report:

Net-long exposure to GBP/USD futures rose to a 17-year high among large speculators, with a record level of gross-long exposure. And that was before UK GDP beat expectations, prompting banks to upgrade their GBP/USD forecasts. Spot GBP/USD prices reached a 50-week high in response and were the second strongest FX major last week, behind the Japanese yen.

Whilst we could see continued gains for GBP/USD, bulls should also take note that net-long exposure could be nearing a sentiment extreme. It would likely require a combination of factors (such as UK data rolling over unexpectedly and US data perking up) before we could assume a big pullback.

AUD/USD (Australian dollar futures) positioning – COT report:

Large speculators flipped to net-long exposure to AUD/USD futures for the first time in three years. It did not come without warning given long exposure had been trending higher since April and shorts peaked in March. Furthermore, long exposure accelerated in recent weeks, and with the Fed now primed for four cuts by March due, I assume net-long exposure is already higher.

By Tuesday’s close, large speculators were net long by 2.4k contracts. Whilst managed funds remained net short by -22.7k contracts, it seemed just a matter of time before they also flipped to net-long exposure.

Gold futures (GC) positioning – COT report:

Futures traders got behind metals last week by increasing net-long exposure to gold, silver and copper and further reducing net-short exposure to palladium.

Net-long exposure to gold futures also increased among large speculators and managed funds, although both sets of traders also increased gross-short exposure. Yet the trend structure of the weekly chart remains firmly bullish and shows the potential to break to a new all-time high, and market positioning is not flagging a potential sentiment extreme.

Futures traders increased their net-long exposure to copper futures for the first week in six, although prices failed to extend the rally from the previous weeks’ bullish range expansion. Still, it appears a corrective low is in place and with the US dollar and yields potentially falling in the coming weeks, it provides upside potential for copper prices from here.

Net-short exposure to palladium futures has fallen by around a third, after reaching a record high four weeks ago.