Speculators Bought Sterling Futures with Both Hands

Silhouette of woman in suit against large keyhole window

In the days ahead of the murder of Jo Cox, a UK member of parliament, apparently for her support for remaining in the EU, speculators in the futures market scooped up sterling.  They added 25.4k sterling contracts to lift the gross long position to 61.7k contracts.  This is the second largest long speculative position after the mid-March holdings of 62.9k long contracts.

In the previous CFTC reporting week ending June 7, speculators were aggressive sellers of sterling futures.  They had boosted their gross short position by 33.2k contracts.  While the bulls made a stand in the more recent reporting period, and that was before sterling’s slump to almost $1.40 in the spot market, the bears covered 4.3k short contracts to reduce the holdings to 98.4k contracts.

The net speculative sterling position was short 36.7k contracts as of June 14, down from 66.3k contracts the prior week.  At the end of May, the net speculative position was short 32.9k contracts. While the net position, which is what the conventional analysis focuses on, is little changed, it conceals what speculators have done.  They have not reduced their sterling exposure as many would have expected ahead, rather the bulls and bears have increased their positions to almost the same extent.   Since the end of last month, the gross long speculative position has increased by 25.2k contracts and the gross short position increased by 29k contracts.  This seems to ensure that regardless of the outcome of the referendum, there will likely be a dramatic market reaction.

There was only one other significant speculative position adjustment in the latest reporting week.  The bulls added 11.0 euro contracts to its  gross long position, giving it 104.5k contracts.  It is the largest gross long position in over a month.  The gross shorts increased by less than five hundred contracts and now stands at 161k contracts.

There were three adjustment that almost reached out threshold of 10k contracts to be significant.  First, the bulls continued to rebuilt their gross long yen futures position.  They added 9.5k contracts to 77.7k.  This is a three-week high.  Also, reflecting the extreme sentiment, the gross short position was reduced by 3.4k contracts to 22.0k.  This is the smallest gross short position since 2011 and goes unnoticed by those simply focusing on the net position.

Second, speculators had been accumulating short Swiss franc futures positions consistently since mid-April when the gross short position bottomed at 9.2k contracts.  Recall that in the previous reporting period; speculators added a little more than 7k contracts, which raised the gross short position to 31.3k contracts.  This ran against ideas of the Swiss franc as a safe haven currency, However, in the most recent reporting period, the bears covered 9.9k short contracts.  It snaps an eight-week accumulation streak.  The bulls added 6.8k contracts to the gross long position, which stood at 28.5k contracts as of June 14.  The gross adjustment were sufficient to swing the net position back to favor longs by 7.1k contracts, the largest since the end of April.

Third, speculators trimmed the gross long New Zealand dollar futures position by 9.0k contracts, leaving the bulls with 29.6k contracts.  The bears added 3.4k contracts to the gross short position, giving them 33.4k contracts.  The gross position adjustment saw the net position slip to being short 3.8k contracts after being long 8.5k contracts in the prior period.

Speculators showed a clear preference for adding to gross long foreign currency positions in the futures market.  The New Zealand dollar and the Mexican peso were the only exceptions among the eight currency futures we track.  Changes in the gross short positions were evenly divided.

Oil prices fell for six consecutive sessions through June 16 before rallying on June 17.  In the reporting week ending June 14, the bears dominated in terms of positioning.  They added 10.4k contracts to their gross short position (to 210.8k contracts) and liquidated 2.2k gross long contracts (to 523.4k contracts).  The net long position slipped eased by 12.6k contracts to 312.6k.

Both bulls and bears were emboldened by the recent price action in US 10-year Treasuries.  The bulls added 90k contracts to their gross long position (to 600.9k contracts) while bears added 60k contracts to their gross short position (to 555.8k).  These adjustments results in the tripling of the net long position to 45.1k contracts from 15.2k.

14-Jun      Commitment of Traders
Net  Prior  Gross Long Change Gross Short  Change
Euro -56.5 -67.1 104.5 11.0 161.0 0.4
Yen 55.7 42.9 77.7 9.5 22.0 -3.4
Sterling -36.7 -66.3 61.7 25.4 98.4 -4.3
Swiss Franc 7.1 -9.6 28.5 6.8 21.4 -9.9
C$ 18.4 24.5 42.4 5.0 24.0 8.1
A$ -6.8 -15.8 39.5 4.1 46.3 -4.9
NZ$ -3.8 8.5 29.6 -9.0 33.4 3.4
Mexican Peso -65.6 -59.3 16.9 -5.5 82.5 0.8
(CFTC, Bloomberg) Speculative positions in 000’s of contracts