Speculators Make Concerted Effort to Pick Bottom in Sterling

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Speculators in the futures market increased their gross long sterling position by nearly 20% to 63.6k contracts (+11k) in the reporting week ending October 25.  In mid-September the gross long position stood at 40.4k contracts.  

Not everyone is convinced that sterling will bounce.  The bears extended their gross short sterling position by 3.4k contracts to 147.6k.  On the eve of the UK referendum, the gross short position was around 94k contracts.  

Again speculators, both bulls and bears have rapidly expanded their exposure in recent weeks.  In the most recent reporting period, the bulls added 14.7k contracts, lifting the gross long position to 142.9k contracts.    Given the bearish sentiment and recent trend, this is a very large position.  It is about 5k contracts shy of a record set in May 2007.

The bears increased the pressure by adding 29.3k contracts to their gross short position of 266.7k contracts.  This is 5k contracts shy of the record set in March 2015.  The gross short position has risen by nearly 100k contracts since mid-September.

The bears continued to run for cover in the Mexican peso futures. They covered another 10k contracts to reduce the gross short position to 54k contracts.  It has been halved since the end of September’s record of nearly 111k contracts.  The bulls, however, were not so sure, and liquidated 4.7k contracts, leaving them with 28.7k.

There were two distinct patterns in the speculative activity.  With the exception of the peso, speculators added to gross long currency futures positions.  They also added to the gross short positions, with the exception of the yen (-0.2k contracts) and the peso.  Speculators were taking on more risk.  This is lost if one focuses only on the net positions.  Next week we will learn whether this was just a quick play or positioning ahead of this week’s four central bank meetings and US jobs data (and of course, the run-up to the US election.

In the oil and T-Note futures, speculators cut exposure.  They shaved their gross long oil position by 6.7k contracts to 571.8k.  Speculators covered 2.3k contracts to reduce the gross short position to 168.2k contracts.  This saw the net position slipped 4.4k contracts to 403.6k.

The adjustment in the 10-year Treasury note futures was larger.  The bulls liquidated about 5% of their gross long position (31.9k contracts), leaving them with 631.3k contracts.  It is the smallest position in two months. The bears covered 6.5k contracts bringing the gross short position to 556.8k contracts.

25-Oct        Commitment of Traders
Net  Prior  Gross Long Change Gross Short  Change
Euro -123.9 -109.3 142.9 14.7 266.7 29.3
Yen 44.6 37.0 82.4 7.4 37.8 -0.2
Sterling -84.0 -91.6 63.6 11.0 147.6 3.4
Swiss Franc -18.7 -16.4 18.8 0.5 37.5 2.8
C$ -13.3 -14.3 33.3 9.6 46.6 8.6
A$ 31.9 30.0 83.2 2.6 51.2 0.7
NZ$ -0.4 -0.2 29.5 0.0 29.9 0.3
Mexican Peso -25.3 -30.7 28.7 -4.7 54.0 -10.0
(CFTC, Bloomberg) Speculative positions in 000’s of contracts