Looking at the most recent Commitments of Traders report, notable changes include rising US dollar index and Swiss franc net positions, and falling Australian dollar net positions. Crude oil remains at a bullish extreme this week, based on 3-year trailing averages and net speculator positions as a proportion of total open interest.
The purpose of this weekly report is to track how the consensus is positioned across various major currencies and commodities. When net long positions become crowded in either direction, we flag extended positioning as a risk. Crowded positions do not suggest an imminent reversal, but should be considered as a significant risk factor when investing in the same direction as the crowd. This is shown below:
CFTC COT speculator positions (futures & options combined) – February 27, 2018
Notable extremes, significant changes in weekly positions, and large net positions as a proportion of open interest are highlighted above. Extremes in net positions are highlighted when speculator positioning is more than two standard deviations above trailing 1-year and 3-year averages. Weekly changes are highlighted when they are significant as a proportion of open interest. Finally, net positions as a proportion of outstanding interest are highlighted when they are large relative to historical averages. 1-year and 3-year z-scores are visually represented below:
1-year and 3-year z-scores based on net speculator positions
Looking more deeply at recent changes, safe haven currencies appear to be making a comeback. This week, speculators have trimmed their net short positions in the US dollar index, Swiss franc and Japanese yen. On the other hand, net positions in “risk on” currencies including the euro, British pound, Australian dollar and Canadian dollar are lower this week.
Prior to the recent rout in riskier assets, net short positions in safe havens (such as the US dollar) were at bearish extremes while net long positions in riskier currencies (such as the euro) were at bullish extremes. Today, only long crude oil (WTI) positions are at a bullish extreme. Despite the strong rebound in US equity markets, currency speculators appear to be less keen to “buy the dip”.