This week’s Commitments of Traders Report includes quite a few notable changes. The number of long positions in the Canadian dollar have fallen by a significant degree, while speculators have also increased their short positions in the currency. The result is that speculators are now net short the Canadian dollar for the first time since July 2017. Speculators have also cut long positions in the Australian dollar. On the other hand, speculators have added to their net long positions in the Japanese yen, gold, and the British pound.
Turning to extremes in positioning, long crude oil remains at a bullish extreme based on 36-month trailing average net positions. New extremes this week include long Japanese yen positions (based on 12-month trailing averages) and long British pound positions (based on 36-month trailing averages). Short USD is no longer at a bearish extreme.
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) – March 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 at this week’s changes in more detail, the biggest move has occurred in the Canadian dollar. There are 54,455 fewer long positions in the Canadian dollar this week, and speculators are now net short the currency by the tune of 26,162 futures and options contracts. While the loonie has been weakening since early February, speculators have stubbornly maintained a net long position in the currency for the past two months. A similar dynamic is in play for the Australian dollar. While the value of the currency peaked in late January, speculators continue to maintain a small net long position in AUD.
Speculators have also missed the Japanese yen rally. Speculators have maintained significant net short positions in the yen since early 2018. In the last two weeks, yen bears have given up and positioning is now more neutral. Turning to gold, rising volatility is helping gold bulls gain confidence. This week, speculators added 58,562 contracts to their net long position in the precious metal.
Finally, the announcement of the Brexit transition deal is making British pound bulls more optimistic. This week, the number of net long positions in GBP rose by 18,689 contracts after 15,658 contracts last week. Long GBP is once again above our bullish extreme threshold. The last time bullish positioning in the pound looked extreme was back in early February 2018.