Net-short exposure to EUR/USD reaches 4-year high: COT report

Market positioning from the COT report – Tuesday, 10^th December 2024:

• Traders were long US dollar by 24.6 billion last week, which is its most bullish level in seven months
• Net-short exposure to EUR/USD futures rose a four-year eight-month high among large speculators
• The Japanese yet was net-long for a second week among large speculators and managed funds
• Large speculators reduced net-long exposure to AUD/USD futures to an 11-week low, asset managers increased net-short exposure to 16-week high
• Net-long exposure to gold futures increased for a third week among both sets of traders, to a seven-week high

US dollar positioning (IMM data) – COT report:

The US dollar index formed a 3-week bullish reversal pattern last week called a morning star reversal. It seems the market wants to drive the dollar above its 14-month high set three weeks ago. Traders were long the USD by $24.6 billion last week according to data from the international Money Market (IMM), its highest level in seven months. Asset managers increased their net-long exposure to the US dollar index slightly, by 707 contracts – all of which were fresh longs with no changes to shorts. It is worth noting that net-long exposure among asset managers is not at a sentiment extreme.

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

Large speculators increased their net-short exposure to their most bearish level in four yeas and eight months last week. They also increased gross shorts for a fourth week and to highest level in two years and three months. Even so, they do not appear to be at a sentiment extreme which leaves the trapdoor open for further downside as we head into 2025, and a move below parity on the cards. And if they continue to pile into the yen, perhaps short EUR/JPY is the trade for next year.

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

Asset managers flipped to net-long exposure, large speculators were net-long for a second week. Yet speculative volumes (specs and asset managers combined) were lower for a third week, which tells us that short covering has been the main culprit behind the net-long status. And with yen prices weakening for a second week, I cannot say with confidence traders will remain net long. Unless of course the BOJ surprise with a hawkish hold or even a hawkish hike this week.

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

Traders has a more bearish view of commodity FX futures last week, with both sets of traders increasing their net-short exposure for NZD and CAD futures while reducing net-long exposure to AUD futures.

Large specs and managed funds were their most bearish on NZD/USD futures in five years. While this could be seen as a sentiment extreme by recent standards, they were actually net-short by around 30% more back in 2019.

Open interest hit a record high on CAD futures and net-short exposure is approaching its record high among both sets of traders. This could be at or near a sentiment extreme.

Whereas the Australian dollar looks like it wants to break below 63c, with large specus reducing their net-long exposure to an 11-week low while asset managers increased their net-short exposure to a sixteen week high. Clearly, this is not a sentiment extreme for either camp and raises the question as to whether we may see an Australian dollar make its way to the 50s next year.

Metals futures (gold, silver, copper) positioning – COT report:

Managed funds increased net-long exposure to gold, silver and copper futures. Whereas large speculators only increased their net-bullish exposure to gold. I stand by my prior views that gold prices won’t simply break to a new record high from current prices, and that we’re still in a retracement from the record high which could result in another leg lower.