Traders were cautious with USD, gold, VIX ahead of the election: COT report

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Market positioning from the COT report – Tuesday, 5 November 2024:

• The latest COT data shows us market positioning up to the close of the day of the US election, and therefore will not show us how traders reacted to the results
• Traders were net-long USD futures (in aggregate) for a fifth week heading into the election
• Asset managers continued to pile into long VIX bets ahead of the election, pushing net-long exposure to a 2-year high
• Both sets of traders derisked from gold and silver futures by trimming longs and shorts
• Large speculators increased net-short exposure to JPY futures to a 14-week high, speculative volumes increased for a fifth week
• Dovish bets for the BOC and RBNZ saw large speculators increase their net-short exposure to NZD/USD futures to an 11-week high and CAD futures a 12-week high
• Yet AUD/USD bucked the commodity FX trend with large speculators increasing net0-long exposure to a four-week high, although shorts were reduced at a faster pace than longs ahead of the election
• Gold and silver traders reduced net-long exposure for a second consecutive week

  

US dollar positioning (IMM data) – COT report:

The USD index increased for a sixth week and formed a bullish engulfing candle. Positioning was a little hesitant to overcommit to USD longs before the election, as the week-over-week change among all futures contracts was effectively flat. Yet traders are clearly bullish on the USD overall, even if large speculators were only marginally net-long by 95 contracts. I suspect they will close the gap with asset managers in coming weeks to increase their net-long exposure.

  

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

Traders continued to pile into short yen bets heading into the election, with asset managers and large speculators increasingly gross-short exposure for a fifth week. Trading volumes between the two sets of traders also increased for a fifth week to show some conviction behind yen weakness. But with odds of a BOJ hike increasing and the potential for the yen to regain safe-haven demand for Trump 2.0, we may find that upside potential for USD/JPY could be capped or even enter some sort of a retracement in then coming weeks.

 

 

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

Softer economic data and dovish expectations of the RBNZ and BOC allowed asset managers and large speculators to increase their net-short exposure to NZD and CAD futures. Both sets of traders increased shorts and trimmed longs to show conviction behind the bets, although price action shows that after a multi-week selloff bearish momentum is waning. Bears therefore may want to tread with caution, while allowing for headline risk surrounding trade relations with the US.

 

 

Metals (gold, silver, copper) futures - COT report:

It seems gold and silver traders were right to be wary of extended gains heading into the US election, with net-long exposure felling for a second week. The shooting star week which formed on god futures was the perfect prelude to last week’s post-election selloff, and a correction is now underway. And with Trump driving headlines and US data generally outperforming more than not, it keeps hawkish pressure on the Fed, which supports yields and the USD to the detriment of gold. And where gold goes, silver tends to follow.

Positioning for copper was essentially unchanged, but then it hasn’t had the luxury of a strong rally before this point. Traders will want to keep a close eye on China data this week to see if stimulus has began to make an impact on the economy, alongside US-China relations going forward.

 

WTI crude oil (CL) positioning – COT report:

Positioning for WTI crude oil was bullish heading into the election for several reasons. While both sets of traders remained net-long, they both trimmed shorts and increased longs, while overall speculative volume also increased. Specifically, large specs reduced gross shorts by -11.5% (-15.3k contracts) and increased longs by 10.1% (29.9k contracts). It will be interesting to see how this plays out with Trump returning to the Whitehouse if production increases, as this could essentially cap gains if supply exceeds demand. WTI crude oil is -2.5% lower from Tuesday’s close.

 

 

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

The bullish outside days which formed on all three Wall Street indices confirms that the re-off approach before the election has been overturned. Net-long exposure among asset managers decreased across all three indices before posting their strong gains in the second half of the week. While bullish momentum waned as we approached the weekend, I suspect dips are more likely to be bought than not.