USD futures traders on the cusp of net-short exposure: COT report

Market positioning from the COT report - as of Tuesday 20 August, 2024:

• Futures traders reduced net-long exposure to the USD against G10 currencies by -6.3 billion
• Asset managers flipped to net-long yen exposure, large speculators were net-long for a second consecutive week
• Net-long exposure increased on gold, silver and copper futures among large speculators and managed funds
• Large speculators increased their net-long exposure to gold futures to their most bullish level in over four years before prices reached a record high
• They also increased net-short exposure to Swiss franc futures for the first week in five, with longs being reduced by -17% (-1.5k contracts) and shorts rising by 8% (2.5k contracts)
• Net-short exposure was reduced to commodity FX (AUD, CAD and NZD) by large speculators

US dollar positioning (IMM data) – COT report:

Futures traders may be just a week or two away of flipping to net-short exposure to the US dollar against all other currencies, according to data from the IMM (International Miney Market). Net-long exposure is now at its least bullish position in six months, having been reduced by around -$43 billion over the past three weeks.

Large speculators remained defiantly net-long ahead of Jerome Powell’s speech, which I suspect they may now regret. Asset managers were on the cusp of flipping to net-short exposure, and in all likelihood already are following Powell’s dovish speech.

The US dollar index is hurtling towards the 100 handle, with the July low at 99.22 making the next major support level.

JPY/USD (Japanese yen futures) positioning – COT report:

Asset managers finally joined large speculators in being net-long yen futures, for their first time since January. But looking back through post-covid history, they have spent little time being net long. Still, this is the first time both sets of traders have been net long since Q1 2021.

It was also the first week in five that both sets of traders increased open interest, with long being initiated and shorts being trimmed. Even if only slightly. With hawkish comments making a comeback from the BOJ, perhaps longs can be supported in the coming weeks.

Commodity FX (AUD, CAD, NZD) futures – COT report:

Traders were clearly long risk heading into Jerome Powell’s speech, with Wall Street indices climbing through most of the week. This also benefited commodity FX, with AUD, CAD and NZD all closing higher for the week.

Large speculators decreased their net-short exposure to all three commodity currencies, whereas asset managers only reduced net-short exposure on NZD/USD and AUD/USD. But with markets pricing in multiple Fed cuts on the assumption of a soft landing, sentiment could allow further gains on commodity prices and commodity FX In the coming weeks.

Wall Street indices (S&P 500, Dow Jones, Nasdaq 100) positioning – COT report:

Asset managers continue to favour the S&P 500 for their bullish bets, with net-long exposure rising back towards the YTD peak. They also flipped to net-long exposure to Dow Jones futures with prices also approaching their record high like the S&P 500. Yet asset managers remain a little wary of simply wading back into the tech sector, with net-long exposure to Nasdaq 100 futures effectively moving sideways. Prices are also not as close to their record highs compared to the S&P and Dow Jones, making the tech index the favoured short during turbulent times.

Gold, silver, copper futures (GC) positioning – COT report:

The weaker USD has certainly helped metals, and commodities prices in general. Silver and copper futures increased for a second week and gold reached a record high, even if it did go on to close flat for the week with a doji.

Net-long exposure to copper futures increased for the first week in five among large speculators and first week in six among managed funds. Both sets of traders also increased net-long exposure to silver futures for the first week in six.

Large speculators increased their net-long exposure to gold futures to their most bullish level in over four years, before prices reached their latest record high.