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Head of Fixed Income Strategy
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COT: Dollar selling continues despite lack of price reaction
Ole Hansen
Head of Commodity Strategy
Summary: Speculative dollar selling against ten IMM currency futures, with the exception of JPY, extended into a sixth week with multi-month position highs seen in MXN, CHF, GBP and AUD.
Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.
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).
Leveraged fund positions in bonds, stocks and VIX
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.
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.
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.
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