Market Sentiment

Not only are traders increasingly long the US dollar, they are also piling into short EUR/USD bets. And that could pave the way for a sub-parity euro next year.

Large speculators flipped to net-long exposure yen futures for the first time in six weeks. And it did not come without warning from myself or market positioning over the prior two weeks. Bullish exposure is certainly not extreme at just 2.4k contracts, but with odds of a BOJ hike rising and asset managers net-short by just 5.8k contracts, we could be looking at a stronger yen as we head into the new year given the turbulence we may face during Trump’s second term.

We may have seen an important swing low on the yen looking at the change of speculative market positioning. And that could see a much deeper pullback on USD/JPY.

While traders pushed net-long exposure to the USD to a 20-week high, there is also been a notable pickup of long yen bets. They're also piling into EUR/USD shorts, which is why I continue to suspect USD/JPY and EUR/USD may converge and move lower.

As the latest COT data is up to the close of election day, it shows how traders were positioned ahead of the results. Subsequent market moves suggest they needn't have piled into VIX longs and could have increased net-long exposure to the USD. But they were right to be wary of gold.

Large speculators joined asset managers with a net-short exposure to yen futures ahead of the BOJ meeting, although their bearish positioning may be ‘short lived’ if the central bank really is a step closer to raising rates. De-risking also appears to be in the air ahead of the US election looking at positioning across AUD/USD, gold and the VIX.

Another week, another record high for gold. And another start to the week where I am asking myself “when is this rally going to top?”. While new highs are eventually favoured, a small pullback may not hurt first.

It was another flipping week for futures traders, with the $10.6 billion added to USD longs seeing the dollar flip to net-long exposure, large speculators revert to net-short EUR/USD and asset managers flip to net-short JPY/USD exposure.

Bullish bets for the VIX continued to rise, which saw asset managers flip to net-long exposure and large speculators close to doing so themselves. Bullish interest for the USD index also rose alongside prices, yet traders shied away from cured oil and were more bearish on commodity FX. Positioning was also mixed across Wall Street indices.

Traders seems to be hedging event risk with the VIX heading into the US election, with traders close to net-long exposure despite record highs for the VIX. Asset managers and large specs continue to have opposing bets on the USD index, with the former generally being on the correct side of the dollar’s direction.

It has certainly felt like a one-way bet for gold bulls recently. But with short bets rising an early signs of a pullback on gold prices, perhaps the trend needs a break.