FX Speculative Positions – Aussie and Yen positioning at decade highs
December 10, 2012 / FX Insights / Spec positioning
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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.
Australian Dollar
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.
Euro
Euro positioning jumped sharply last week with net shorts falling by more than 50% or 33898 to -32795 which is the lowest net short Euro position in over a year. This no doubt reflects the break of the recent range top and the trendline but the reversal of the Euro back below 1.29 is however likely to have seen some of these positions are likely to have re-entered short.
Based on current positioning the market has plenty of room to sell short if the current move lower accelerates.
Yen
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.
Pound
Another 16000 longs were added to the GBP longs last week bring total net longs to 27270 which is just 10% below the 6 and 12 month highs. Once again this positioning is looking stretched and the GBP reversal late last week will have these extra longs under pressure.
A break of 1.5952/57 is likely needed however to cause any sort of material liquidiation
NZD
Kiwi longs continue to steadily walking up toward the highs of the last 6 and 12 months being in the top quartile of positioning over both these periods. That gives some small market based impediment to further speculative buying and opens a chance of large unwinds should the rally fade on Equity worries over the cliff given NZD’s very high correlation recently to moves in the S&P 500.
CAD
CAD longs fell 5308 last week to 57071 close to the middle of the range for the last 6 and 12 months. Plenty of topside ammunition on this basis and not likely to be a huge trigger for selling should the emerging break of the 3 month USDCAD uptrend reverse.
Why we look at CFTC Commitment of Traders Positioning
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.
Greg McKenna
Twitter: @FX_Global
Tags: Aussie Dollar, CFTC Commitment of Traders report, Euro, Global FX, US Dollar, Yen
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.
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About the author
Greg McKenna is Chief Investment and Market Strategist at GlobalFX He has 25 years’ experience in Banking and Finance specifically in Trading, Portfolio Management, as a Strategist and as a Treasurer. In 1998 Greg became Australia’s first currency strategist at Westpac before moving on to Head of Currency Strategy at NAB. As a Fund Manager with the NSW State Super Board he managed Cash, Bond and Foreign Exchange funds with assets under management in the many billions of dollars. More recently he was Treasurer of Newcastle Permanent Building Society where he was responsible for funding, liquidity, balance sheet and interest rate management for the $7.5 billion institution.
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