Short bets against the USD continued to pile up: COT Report

• Futures traders increased their net-short USD exposure by 8.4 billion last week, to -17.4 billion
• Large speculators increased their net-long exposure to yen futures to their most bullish level since February 2022
• They also increased their net-long exposure to EUR/USD futures to a 34-week high, and asset managers a 30-week high
• Traders continued to reduce their net-short exposure to commodity FX (AUD, CAD, NZD) , with asset managers and large speculators increasing longs and trimming shorts
• Large speculators were on the cusp of flipping to net-long exposure to NZD/USD futures, with a net-short exposure of just -238 contracts
• However, the risk-off tone to the end of last week means net-short exposure likely increased on commodity FX after the report was compiled
• Net-long exposure to gold, silver and copper futures were lower by both sets of traders heading into NFP
• Asset managers reduced their net-long exposure to Nasdaq futures to their least bullish level since November
• Large speculators reduced net-long exposure to WTI crude oil futures to their lest bullish level since February

US dollar positioning (IMM data) – COT report:

Asset managed slipped into met-short exposure to the US dollar index. But only just, by -586 contracts. The recent declines have mostly been driven by an increase of short bets, with gross shorts rising to their highest level since July 2023. Yet large speculators increased their net-long exposure to US dollar index futures to their highest level since December.

If we look at USD positioning across all futures contracts, traders increased their net-short exposure by 8.4 billion to -17.4 billion net short.

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

It was safety first where the yen was concerned, with large speculators increasing their net-long exposure to yen futures for a fourth week, and asset managers for a third. However, overall volumes from both sets of traders remain relatively low. But it is worth noting that gross longs are picking up while shorts are decreased, which shows they are cautiously bullish on the currency pair.

The BOJ made more hawkish sounds last week, which plays nicely with the bullish engulfing week which formed on the yen. However, it should be remembered that they may scale this back once again if Wall Street indices continue to fall, as they did a few weeks ago which saw then yen weaken. But if Wall Street escapes a sharp correction, USD/JPY may be able to continue lower in line with sentiment towards it.

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

Both large speculators and asset managers increased their net-long exposure to EUR/USD futures to 34 and 30-week highs respectively. Yet in both cases, gross-long exposure was trimmed, although short exposure was trimmed at a faster pace to push net-long exposure higher. This is not the ideal scenario for bulls as both camps are derisking. And given the 2-bar bearish reversal the week prior (dark cloud cover) after an extended run, perhaps EUR/USD may struggle to retest its highs soon unless the US dollar continues to roll.

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

Traders were very close to flipping to net-long exposure to NZD/USD futures, and we saw the familiar pattern of diminishing short exposure against CAD and AUD. Yet with momentum turning against all three commodity currencies in the seconds half of last week, I cannot help but suspect short interest will pick up – especially if we do see a correction on Wall Street deepen.

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

It is interesting to see that both large speculators and asset managers trimmed their net-long exposure to gold, silver and copper futures ahead of Friday’s nonfarm payroll report. And that all three metals traded lower after it. As before, gold held its own despite closing the week lower and traders remain heavily bullish overall – even if slightly less so on the week.

Yet there is a real chance that both sets of traders may flip to net-short exposure to copper futures. And that is why it remains my preferred short of the three metals (much like the Nasdaq is my preferred short among the three Wall Street indices).

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

I have noted in recent weeks that the Nasdaq was my preferred short of the three Wall Street indices, during times of turmoil. And that view has only been reinforced this past week. Not only did Nasdaq futures fall nearly 6% last week, but asset managers had reduced their net-long exposure to their least bullish level since November.

However, this has mostly been a function of longs being covered, although gross-short exposure was also lower among asset managers last week. Both large speculators and asset managers also reduced long and short exposure to Dow Jones futures. Yet asset managers remained defiantly long S&P 500 futures, and large speculators increased gross-long exposure (although they remain net short).

Ultimately, if we’re staring at a much deeper correction, Nasdaq shorts remain my preference given real money accounts (asset managers) have been divesting away from it for most of the year.