Looking at this week’s Commitments of Traders Report, notable changes include rising net speculator positions in the Japanese yen, British pound and Australian dollar. US dollar net positions also fell significantly this week. While crude oil remains at a bullish extreme (looking at 36-month trailing averages, and net positions as a proportion of total open interest), our implied measure of US dollar positioning is now also 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 20, 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 this week’s changes, the biggest moves have occurred in safe havens such as the US dollar and the Japanese yen. Japanese yen bears are capitulating following significant strength in the currency this year. Last week, short positions in yen futures and options fell by 56,566 contracts. Turning to implied positioning in the US dollar, the impact of rising net positions in the British pound, Japanese yen and commodity currencies is pushing down US dollar positioning accordingly. Last week, implied net speculator positions fell by 85,890 futures and options contracts. Based on 3-year z-scores, the US dollar is now at a bearish extreme.
As the world’s liability currency (the US dollar) remains out of favor, “risk-on” currencies are doing better by comparison. Thanks to the Brexit transition deal announced last week, net positions in the British pound rose markedly. Australian dollar net positions also rose by 20,411 contracts last week. The move is relatively surprising given rising concerns of a global trade war (AUD is particularly vulnerable given Australia’s significant trading relationship with China). The change in AUD positioning may thus be reflective of optimism for a positive resolution to current tensions.