COT: GBP and MXN bought while EUR sold ahead of FOMC

The Mexican peso reached a five-month high against the dollar last week and in response to this, the net-long reached a six-year high and it remains the second-biggest long after the dollar. Buying of the ruble, one of the best performing currencies this year, raised the net-long to a 28-month high. 

Financials

Leveraged funds resumed selling ahead of last week’s dovish FOMC meeting, which triggered the biggest weekly yield drop in US 10-year notes since June 2016. Selling occurred across the curve with a small amount of short-covering in 10s and 10 Ultras being the exceptions. Asset managers hold most of the corresponding long but with (short) positions being so elevated the drive to reduce is likely to continue to add downward pressure on yields.

Short-selling of the Cboe VIX Index jumped by 44% to 128k lots, a five-month high. The combination of falling volatility – until last Friday – and the futures curve trading in contango helped attract additional short selling.  

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 advisers (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.