USD, JPY, AUD, gold, crude oil analysis: COT report

Market positioning from the COT report - as of Tuesday 24 September, 2024:

• JPY, gold, silver and S&P 500 futures all have extreme bullish position on the 3-year, `1-year and 3-month percent rank table
• Wall Street indices saw a notable increase of net-long exposure last week among asset managers
• Large speculators increased their gross-long exposure to AUD/USD futures at their fastest weekly pace in over nine years
• Net-long exposure to JPY futures rose to a near 8-year high (7 years and 11 months)
• Asset managers were net-short USD index futures for a second consecutive week
• Both sets of traders increased their net-short exposure to Swiss franc futures following the SNB’s dovish cut and pushback against a strong currency
• Bullish interest to WTI crude oil futures increased for a second week among large speculators and asset managers

US dollar positioning (IMM data) – COT report:

The optimism of large speculators towards the USD index finally crashed two weeks ago, as their net-long exposure fell at the fastest pace seven years. Yet they still remained net-long, but only just at +959 contracts by last week. Asset managers remained net short, but only just at -1598 contracts by last week.

The USD index fell for a fourth week yet remains above 100. And should incoming data outperform,, I suspect it could be in for a countertrend bounce before 100 finally gives way as support later this year.

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

If you want further evidence of the carry-trade unwind, look no further than speculative volumes on the yen. Asset managers and large speculators significantly reduced their open interest to yen futures while the currency appreciated rapidly.

With the Fed in easing mode, the BOJ in hawkish noises and Japan’s new PM considered a hawk, there’s a reasonably chance we might see speculative volumes increase alongside prices in the weeks or months ahead.

Net-long exposure reached a multi-year high, but still low by historical standards.

AUD/USD (Australian dollar futures) positioning – COT report:

Large speculators increased their gross-long exposure to AUD/USD futures by 28k contracts (52%), which is their fastest pace in over nine years. Short interest has been trending lower among asset managers and large speculators since January, and it remains a real possibility that both sets of traders could flip to net-long exposure in Q4 (especially with seasonality on its side).

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

Asset managers waded back into Wall Street indices after the Fed meeting, seemingly confident that the Fed can steer the economy towards a soft landing while cutting rates. Net-long exposure to Nasdaq 100 futures increased at its fastest pace in 13 weeks, or 10 on the Dow and 6 on the S&P 500. The Dow Jones closed at its highest level on record last week, although asset managers are not near a sentiment extreme.

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

Gold is in a bull market that just keep on giving, with little in the way of pullback along the way. Prices reached their latest record high last week, and gross-long exposure reached its most bullish level since the pandemic last week among large speculators.

However, they are also only just 20k contracted beneath the March 2020 high – which is also the record high. But the fact that gross shorts are rising among large speculators and asset managers does show early signs of concern that the bull market is maturing and in need of an actual correction. Bulls therefore may want to remain nimble from here and keep tight stops.

Bullish positioning isn’t quite as extreme on silver futures, as net-long exposure reached a record high in 2015 and current exposure is only around half of the way there. Even if net-klong exposure is now at its highest level since February 2020. But we’re seeing a similar pattern of rising longs and shorts, and if gold falls then I have to presume silver will follow.

Copper prices are surging thanks to the latest round of stimulus announced by China last week. Copper futures held above $4 and appear to have completed a textbook 3-wave correction. Net-long exposure has shot higher for both sets of traders, yet remains relatively low when compared with gold or silver (which means we’re not likely at a sentiment extreme). Should And that paints further upside for potential for copper, at least over the nears term.

WTI crude oil (CL) positioning – COT report:

We may have seen an important low on oil prices in September. Bets are on for a soft landing, yet US growth is outperforming expectations and China’s stimulus should see a rise for oil demand forecasts. We also have rising tensions in the Middle East which could continue to support prices.

Last week we saw managed funds and large speculators increase their net-long exposure to WTI crude oil futures, accompanied by a pickup of speculative volumes. So unless the US recession theme regains momentum, crude oil might be one for bulls to consider on dips.