Here is our summary of this week’s moves in the positioning of the large speculative FX trading community as reported by the CFTC in their Commitment of Traders Report AND what it means for traders.
Summary: Another big week for positioning with more very big moves. Yen shorts extended again increasing 10860 to a new 5 year high. The Aussie Dollar saw a large move as well with an increase in positioning of 15423 to reach the largest net long position in over a decade.
The increase in net AUD longs is massive over the past few weeks as you can see in the chart below. At 92229 the net longs is the highest AUD position since my records which go back to 2000 and if I think about the way the AUD traded before that possibly the highest on record.
Stretched positioning like this is usually a signal that a market top may be forming and it is certainly a headwind to further AUD rallies. The weight of positioning is interesting because it suggests that there is a willing seller at the current level soaking up the demand. That however is pure speculation that can only be answered in time but for now the AUD’s rally off the 1.0150 low continues to grind higher.
A break of 1.0380 for whatever reason could be decisive in turning positioning and seeing some liquidation.
The robot from lost in space will still be warning of danger ahead with Yen shorts increasing another 10860 last week but he’s probably more interested in the Aussie move. As you can see in the chart the Yen shorts are phenomenal and the lowest since June 2007 when the USDJPY was sitting at 123 and change and short positions were a net -188077. This was the peak of a 2 and a half year uptrend for the USDJPY which has largely been in a downtrend since.
-188077 is also the highest number of shorts in our 12 years of historical data so the net position of -90326 is only half way their but unless the USDJPY can take out the recent h at 82.78/82 then positioning may begin to weigh. A break is however a likely strong catalyst for further Yen selling.
FX markets are made up of many different players. One of the most influential are traders and speculators but because of the OTC nature of FX markets it is difficult to get a good read on exactly what the “speculators” are doing in the market.
But we can do that by proxy using the CFTC’s Commitment of Traders report that they release at 3.30 pm each Friday afternoon.
Certainly Futures traders are but a tiny part of the almost 5 trillion dollars of FX turnover each day but they remain a very good bellwether for what positioning might look like in some currency pairs. In some pairs like the EURUSD watching the large speculators is a very good proxy for the underlying EUR rate – while in others the relationship is less strong.
What we know though is that watching this sector of the market is an important part of any traders toolkit of indicators for assessing the direction of a pair both short and long term.
Have a great day.
Please remember these are not recommendations for you to trade these are my views and I have my risk management tools and risk parameters that you do not have access to. Thus, this blog is for information only and does not constitute advice. Neither Greg McKenna nor www.globalfx.com.au has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.