Speculative Sentiment Shifts

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The combination of a robust US jobs report, speculation of bolder action by Japan, the possibility that the ECB drops the capital key to overcome the ostensible shortage of some core bonds (e.g. German bunds), and the anticipation of easier BOE policy appears to have generated a change in sentiment among speculators in the currency futures market.  

A pattern was clear in the speculative position adjustments in the Commitment of Traders reporting week ending July 12. In the euro, yen and sterling, speculators trimmed gross long exposure and added to gross short positions.

Speculators peeled back 4.4k euro long contracts (leaving 107.6k) and added 8k short contracts (bringing the gross short position to 195.3k contracts).  The net short position of 87.7k contracts is the largest sine the end of January.

Speculators trimmed 1.7k gross long yen futures contracts (to 85.4k) and increased the gross short position by more than 50% to 37.8k contracts (from 23.4k).  The net position of 47.5k contracts is the smallest net long yen position in five weeks.

Speculators pared the gross long sterling position by 5.7k contracts (to 40.0k) and added roughly the same amount (5.3k) to the gross short position, lifting it to 100.1k contracts.  The net short position of 60.1k contracts is the second largest in three years and only trailed the net short position in early June.

Such a clear pattern was not evident in the other currency futures, but the tendency was for speculators to add to gross long positions (the Canadian dollar was the exception) and reduce gross short positions (the Australian dollar was the exception).  The position adjustments were generally small, but sufficient to turn the net speculative New Zealand dollar position long after being net short for the past month.

In addition to the 14.4k contract jump speculators’ gross long yen position, the only other significant speculative gross position adjustment was the 12.1k contract increase in Aussie longs.  The 45.9k gross long contracts is the largest since late-May.

The net long speculative oil futures position was trimmed by 4.9k contracts to stand at 294.8k contracts, the smallest in eight weeks.  This smaller net position was the result of the bulls trimming 3.2k contracts from their gross longs (to 516.2k contracts) and the bears adding 1.7k contracts to their gross short position (to 221.4k contracts).

Both bulls and bears reduced their positions in US Treasuries.  This resulted in a sharp rise in the net long position (131.4k from 96.1k contracts).  The bears liquidated 6.2k gross long contracts (to 647.6k) while the bears covered 41.5k gross short contracts (leaving them with 516.2k contracts).

12-Jul      Commitment of Traders
Net  Prior  Gross Long Change Gross Short  Change
Euro -87.7 -75.3 107.6 -4.4 195.3 8.0
Yen 47.5 63.6 85.4 -1.7 37.8 14.4
Sterling -60.1 -49.0 40.0 -5.7 100.1 5.3
Swiss Franc 6.7 8.7 23.3 0.9 16.6 2.8
C$ 17.2 11.5 40.0 -1.1 22.8 -6.7
A$ 16.2 4.9 45.9 12.1 29.7 0.8
NZ$ 1.0 -1.4 31.7 1.1 30.7 -1.3
Mexican Peso -37.1 -44.9 28.6 4.4 65.8 -3.3
(CFTC, Bloomberg) Speculative positions in 000’s of contracts