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COT: Broad commodities sell-off gains momentum; Forex traders seek JPY and CHF

Commodities
Ole Hansen

Head of Commodity Strategy

Key points:

  • Positions and changes made by speculators in commodities, forex and bonds in the week to July 30
  • Big speculative flows in fx sees the dollar long jump despite continued demand for JPY and CHF
  • Record leveraged fund short across the US bond yield curve amid continued and potentially challenging focus on basis trades
  • Broad selling across commodities with the bulk of the net long being held in gold

Forex:

The week to July 30 saw big speculative flows across the board, overall giving an ill-timed boost to the dollar long just before a dovish FOMC meeting, and weak US data helped send the greenback and bond yields sharply lower. Overall, the gross dollar long against eight IMM currency futures rose by USD 6 billion to USD 16.5 billion, thereby partly reversing a four-week period of net selling.

All the major currencies saw big changes with heavy selling of EUR, GBP, CAD (record short), AUD, and NZD being only partly offset by another week of JPY short covering and safe haven demand for CHF.

Non-commercial IMM futures positions versus the dollar in week to July30
Bond futures

Commodities:

A sea of red across the commodities sector in the reporting week drove the Bloomberg Commodity Total Return index down by 2% with all sectors suffering setbacks, led by grains, energy, and industrial metals. Overall, this weakness helped drive bullish bets held by leveraged funds to near a five-year low with net short positions held in grains and platinum group metals, while the long interest was concentrated in a few major commodities. In nominal terms, the gold long remains by far the biggest at USD 46 billion followed by crude oil (WTI and Brent) in a distant second at USD 22 billion with coffee (Arabica and Robusta) in third position at USD 6 billion, while on the short side funds hold a USD 19 billion position in grains.

Managed money long, short and net commodities positions in the week to July 30
Energy: A continued crude oil tumble saw hedge funds reduce their combined net long for a second week, this time by 25% to 290k contracts, a seven-week low, and the biggest two-week reduction in 15 months. Softness in fuel demand, especially diesel, drove sharp reductions in the ICE gasoil as well as NY ULSD.
Metals: Ahead of the latest volatility spike, traders made another small reduction in the gold net long, this time by 5% to 189k contracts, while no change was seen in silver as both long and short positions were reduced. The copper net long slumped by 10k to 9.4k contracts and is now down 87% from a June peak.
Grains were mixed in a week that saw the BCOM grains index slump 4% with buying of soymeal and corn partly offsetting selling of soybeans and soy oil. Overall, the combined net short held in the three major crops held steady near a record high at 551k contracts.
A mixed week in softs with buying of sugar offsetting long liquidation in coffee.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The main reasons why we focus primarily on the behavior of speculators, such as hedge funds and trend-following CTA's are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Do note that this group tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.

Recent commodity articles:

6 Aug 2024: Video: What factors are fueling the current market turmoil and gold's response
5 Aug 2024: COT: Broad commodities sell-off gains momentum; Forex traders seek JPY and CHF
5 Aug 2024: Commodities: Position reduction in focus as volatility spikes
2 Aug 2024: Widespread commodities decline in July, with gold as the notable exception
31 July 2024: Crude's month-long slide halted by fresh Mideast worries
30 July 2024: Record demand explains gold's current resilience
29 July 2024: COT: Energy and metals selling cuts hedge fund long to four-month low
4 July 2024: Sluggish US economic indicators boost demand for gold and silver
4 July 2024: Podcast Special: Quarterly Outlook - Sandcastle Economics
2 July 2024: Quarterly Outlook - Energy and grains in focus as metals pause
1 July 2024: COT: Crude long builds ahead of Q3 while grains selling accelerates
28 June 2024: Metals and natural gas propel commodity sector to quarterly gain
26 June 2024: Crude seeks support from seasonal demand strength
24 June 2024: Copper's resilience despite China weakness
18 June 2024: Precious metals go through prolonger period of consolidation
17 June 2024: COT: Dollar long jumps; Funds start rebuilding crude long
14 June 2024: Commodity weekly: Energy sector gains counterbalance metal consolidation
13 June 2024: Oil prices steady amid divergent OPEC and IEA demand projections
10 June 2024: COT: Brent long cut to ten-year low; metals left exposed to end of week slump
3 June 2024: COT: Crude length added before OPEC+ meeting; gold and copper see profit-taking

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