COT: Dollar selling continues despite lack of price reaction

Speculative selling of dollars against ten IMM currency futures and the Dollar Index extended into a sixth week. In the week to last Tuesday the combined Greenback long had been cut to a fresh 18 months low at just $2.9 billion. Only aggressive selling of JPY (19k lots = $2.2 bn), as it reached a new low, prevented the dollar position from returning to neutral.

During the past six weeks, while the dollar long was cut by 74%, the Greenback weakened by less than 0.5% against a broad basket of currencies. It highlights the potential short term risks to positions should the dollar suddenly pop higher.

Multi month position highs were reached in several currencies led by MXN (record), CHF (Aug-17), GBP (May-18) and AUD (June-18).

The continued stock market rally drove a 16% increase in the VIX short to a four-week high at 168k lots.

Leveraged funds covered short positions at the front of the curve while extending the net-short in Ultra long bonds to a fresh record. The graph below shows how the open interest in US bond futures are mainly split between asset managers, leveraged funds and dealer intermediaries. Leveraged funds are clearly not that naked short, otherwise many would have suffered major losses during the past nine months. Instead the short positions most likely reflects hedging or spread activities against other bonds or asset classes.