USD, CAD, Gold, Copper, VIX, Wall Street analysis: COT report

Market positioning from the COT report - as of Tuesday May 14, 2024:

• Net-long exposure to EUR/USD and DXY futures increased for a second consecutive week among large speculators
• Large speculators and asset managers increased net-short exposure to AUD/USD futures for the first week in four
• They also increased short exposure to CAD futures by 12.4% (12.4k contracts) which saw net-short increase rise by 11k contracts
• Net-long exposure to silver futures rose to the most bullish level since March 2020 among large speculators
• Asset managers continued to trim long exposure to VIX futures and increase shorts, a week after flipping to net-short exposure
• They also reduced short bets to Wall Street indices and increased longs
• S&P 500 short contracts were reduced by -11.2% (-23.6k), 9.6% longs (33k) added, Dow Jones short contracts were reduced by -9.4% (-554), longs were increased by 20.9% (3.4k contracts).
• Managed funds increased net-long exposure to copper futures to a three-year, three-month high

US dollar positioning – COT report:

Net-long exposure to the US dollar reached a sentiment extreme four weeks ago, and the US dollar index has since fallen -2.2% from the April high to last week’s low. It is now trying to hold above the December trendline / 104 handle, which provides a pivotal area for bulls and bears to battle it out over the US dollar’s outlook.

Yet the divergence between asset managers and large speculators remain in place. Large speculators were net-long for a second eek and at their most bullish level in nine weeks, yet asset managers trimmed longs to drag net-long exposure lower for a second week. But it is this latter group which has been on the correct side of the US dollar trade this year, and has they remain heavily net long I am now wondering if any US dollar pullback may be limited. Especially since net-long exposure to the US dollar against all FX futures has been tracking exposure of asset managers quite well.

CAD/USD (Canadian dollar futures) positioning – COT report:

I warned of a potential sentiment extreme for CAD shorts back in April, with net-short exposure reaching a 7-year high whilst prices remained above a key support level. Whilst bears began scaling back their bearish bets to a degree, they have since come back to the table and net-short exposure is just beneath its 7-year high. And this is despite CAD futures prices rising, thanks to the weaker US dollar on renewed Fed-cut bets.

If the US dollar continues to slide, it could send CAD futures higher (USD/CAD lower) and force bears to cover their CAD shorts, which could send the Canadian dollar higher. Otherwise, CAD bears really needs the US dollar to regain its footing and rally, to help justify their current net-short exposure. But with US economic data softening, it now seems plausible for the Fed to potentially cut once or twice, and that means CAD bears may be forced to cover after all.

VIX futures (GC) positioning – COT report:

Last week I noted that real money accounts (asset managers) were showing confidence in the stock market by remaining net-long all three Wall Street futures contracts, whilst flipping to net-short exposure on VIX futures. Just one week later, net-short exposure has now risen to a record high among this set of traders whilst prices went on to close at a record low on Friday. Large speculators also increased their net-short exposure.

Wall Street indices (S&P 500, Nasdaq Dow Jones) positioning – COT report:

Asset managers increased their net-long exposure to all three Wall Street indices futures contracts. They remain the most confident in the S&P 500 given the lack of a pullback on the index and underlying positioning, and the index went to reach a fresh all-time high the on Wednesday (a day after the COT data was compiled). And looking at the bullish weekly candles on the charts below alongside a record-low VIX, it seems the S&P 500 could be leading the way for the Nasdaq and Dow to reach their own record high in due course.

Copper futures positioning – COT report:

A solid increase of bullish bets on copper has seen prices surge to a record high. Prices have risen nearly 30% in the past two weeks alone, which sent prices above $5. Yet by some measures it could be approaching a sentiment extreme.

Net-long exposure among large speculators is fast approaching its record high set in February 2021, with gross-long exposure of this set of traders hitting an all-time high last week. Asset managers were also their most bullish on copper since 2020.

Separately, it is interesting to note that AUD/USD has not maintained its correlation with copper prices during the metal’s strong surge of the past week, although it is trading higher. And that shows that this is not part of a great economic recovery that stands to benefit Australia. Although it does again point to another round of inflation that central bank may have to grapple with later this year.