COT: Dollar buying, VIX selling continues

The selling was broad-based and led by JPY, AUD and NZD. The EUR short remained the largest, although speculators only added 126 lots during the week to move the total to 105,544 lots, or €13.2 billion.

In fixed income, leveraged funds kept up the selling pressure across the yield curve. Short positions in both two-year and Ultra bond reached fresh records. The total DV0, or dollar value of a one basis point move, also hit a record of minus $369 million. During the period 10-year yields dropped by seven basis points to 2.5% with asset managers being the main buyers of what hedge funds were selling.

The net-short in CBOEs VIX future hit a fresh record of 180,000 lots last Tuesday; all but three weeks of this year have seen selling with short sellers looking to capitalise on rising contango in the belief that central banks will keep stocks supported and volatility suppressed.

Yesterday’s double tweet from President Trump threatening to hike tariffs on $200 billion worth of Chinese imports from 10% to 25% by Friday have rattled the market today The S&P 500’s 1.6% drop was followed by a 2.2% jump in the May VIX future to 16.5%. A further move above 17% would push half of the aforementioned short out of the money.

What is the Commitments of Traders report?

The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock index, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.

In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.

In financials the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.

Our focus is primarily on the behaviour of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.

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.