Sentiment Shift Evident in Speculative Adjustment in Currency Futures

Money graph Marc

Speculative positioning in the currency futures began to adjust before the latest signals from the Federal Reserve about the prospects for a summer hike and the widening of interest rate differentials.  In the CFTC reporting week ending May 17, the day before the FOMC minutes were released speculators mostly reduced gross long currency positions and added to gross short positions. 

There were a few exceptions.  Speculators added less than 500 contracts to the gross long euro position (to 101.7k). They added 9.1k contracts to the gross long Mexican peso position (to 25.2k). Speculators also trimmed the gross short yen position by 2.6k contracts (to 27.2k) and gross short Canadian dollar position by 1.9k contracts (to 14.3k).

Another characteristic of the speculative position adjustment in the latest reporting week was the mostly small moves.  Of the 16 gross currency positions we track, only four adjustments were of more than 4k contracts and only one of more 10k contracts.  It was the third consecutive reporting period that saw the Aussie bulls cull their gross long position by more than 10k contracts.  The gross longs fell by 11k contracts in the reporting period that ended May 17, though, at 71.8k contracts, it remains substantial.  It is the third largest gross long position after the euro (101.7k contracts) and the yen (86.2k contracts).

Bulls and bears were emboldened by the price action in the Mexican peso.  The bulls added 9.1k contracts to the gross long position, raising it to 25.2k contracts.  The bears added 9.5k contracts to their gross short position, lifting it to 70.9k contracts.  The bulls took more pain after the reporting period ended, but the greenback reversed lower on May 19 (shooting star candlestick pattern) and saw some follow through selling ahead of the weekend.

The Canadian dollar bulls have had a great run from late-January through early-May.  The bulls are gradually paring the long position build.  In the latest reporting period, they cut 5k contracts, leaving them with 37k.   The shorts were trimmed by 1.9k contracts leaving 14.3k, which is the smallest gross short position among the currency futures we track.

The reporting period is also the first since mid-March that saw the net short euro position increase (-22.6k contracts vs. -21.9k contracts). It was the fourth consecutive week that the net long yen position slipped (now 58.9k contracts after peaking in late-April at almost 72k contracts).  It was the first decrease in the net Canadian dollar position since late-January, as it climb from a net short position.  It was the third week that the net long Australian dollar position fell.  It stands at 24.9k contracts, less than half the peak of late-April of nearly 60k contracts.

By a little more than a 2:1 margin, speculators sold the 10-year Treasury note futures as they were near the upper end of the where they have traded over the past three months.  The gross shorts rose 61.2k contracts to 570.9k, while the bulls added 28.5k, giving them 485.5k gross long contracts.  The net short position increased to 112.3k contracts from -79.3k.  The day after the reporting period ended, the note futures fell in response to the FOMC minutes.  It spent the last two sessions, consolidating with a small upside bias.

The bulls are in control of the light sweet crude oil futures.  They added 32.8k contracts to their gross long position, lifting it to 554.6k contracts, which appears to be a new record high.  The bears retreated; covered 44k gross short contracts, leaving them with 185.8k.  The net position rose 76.8k contracts to 368.8k.  This is the largest net long position since July 2014.

17-May      Commitment of Traders
Net  Prior  Gross Long Change Gross Short  Change
Euro -22.6 -21.9 101.7 0.4 124.3 1.2
Yen 58.9 59.0 86.2 -2.7 27.2 -2.6
Sterling -38.4 -34.9 37.5 -0.1 76.0 3.4
Swiss Franc 4.1 6.9 22.5 -0.2 18.3 2.6
C$ 22.7 25.9 37.0 -5.0 14.3 -1.9
A$ 24.9 38.2 71.8 -11.0 46.9 2.3
NZ$ 6.7 9.4 32.5 -1.0 25.9 1.6
Mexican Peso -45.7 -45.2 25.2 9.1 70.9 9.5
(CFTC, Bloomberg) Speculative positions in 000’s of contracts